OVERVIEW OF NEW LEGISLATION

There were many changes for California HOAs that went into effect at the beginning of this year (2022).  The following provides an overview of those changes with some detailed discussion of each Senate Bill (SB) and Assembly Bill (AB) below the overview.

Election by acclamation. (AB 502) If there are either fewer candidates for open seats or the same number of candidates as open seats, new Civil Code Section 5103 allows the board to declare the candidates elected if the HOA has sent the newly required notices and if the HOA has had at least one election with votes counted in the prior three years. HOAs may wish to update their election rules and require the necessary notices be sent to allow this potentially cost-saving option.

Term limits again allowed. (AB 502) For HOAs with term limits for Board members, new Civil Code Section 5103(d)(2) has confirmed that term limits can be an eligibility requirement along with the four optional eligibility requirements of Civil Code Section 5105(c).

Longer deadline for petitioned membership meeting.  (SB 432) If at least 5 percent of the Association members petition for a special membership meeting (such as a recall election), the meeting must now be held within 35 to 150 days after the HOA receives the petition. (Corporations Code Section 7511(c)).

Websites as bulletin boards. (SB 392) New Civil Code Section 4045(a)(5) allows HOAs to use their websites for general notices so long as the Annual Policy Statement provides notice of this.

Disseminating personal data. (SB 392) New Civil Code 5230(c) prohibits either the HOA or its management to sell or transmit a member’s personal information to third parties without the consent of the member unless required by law.

Financial controls. (AB 1101) For HOAs of 50 or less memberships, a new Civil Code Section 5502(a)(1) lowers the threshold triggering the requirement of written board approval for financial transfers from $10,000 or 5% of budget to the lesser of $5,000 or 5 percent of the estimated income in the annual operating budget.  For HOAs of 50 or more memberships prior written approval for transfers is required for the lesser of $10,000 or 5 percent of the estimated income in the annual operating budget.

Fidelity Insurance Requirements (AB 1101)   AB 1101 also amends Civil Code Section 5806 regarding fidelity bond requirements. An HOA must maintain: fidelity crime insurance, employee dishonesty coverage, or their equivalent, for directors, officers and employees and coverage for dishonest acts by a managing person or company. 

Rental restrictions. (SB 1584) HOAs are required to remove illegal rental restrictions from governing documents per Civil Code Section 4741 by July 1, 2022.  The Civil Code was  revised which opened a six-month period beginning January 1 and ending July 1, 2022, in which illegal rental restrictions in CC&Rs may be removed by board vote without a membership vote. An announcement must be published to the membership at least 28 days before the board vote to approve the amendment.

Purely virtual HOA meetings. (SB 391) Under an urgency statute in effect since September 2021, during local, state or federally declared emergencies preventing meetings, a new Civil Code Section 5450 allows board or membership meetings to be 100% electronic (with no physical attendance) so long as a prescribed initial announcement is made to all members, and issues further required announcements prior to each fully virtual meeting. All board votes must be by roll call vote, and in membership meetings at which votes are counted the Inspector’s counting must be on camera. HOAs still may have “hybrid” meetings, so long as normal Open Meeting Act requirements are met. Given the burden placed on associations that wish to meet via teleconference, associations that wish to meet via teleconference should consider complying with the requirement to provide a location with a single person designated by the board present so that any member who wishes can attend in person to watch or listen to the meeting. With that condition met, the rest of the attendees, including the community manager, directors and members are free to meet from the comfort of their homes, offices or even cars.

Safe At Home program. (AB 611) For HOA members participating in the relatively new “Safe At Home” program, a new Civil Code Section 5216 requires that HOAs use the address designated by the Secretary of State for that owner and may not share their name, address, or email address with other HOA members.

Meetings During State of Emergency (AB 769) This bill amends Corporations Code 7510 to authorize shareholders or members to also conduct a meeting of shareholders or members solely by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication if the meeting is conducted on or before June 30, 2022.

Discriminatory Restrictions. (AB 1469) This bill amends Government Code Section 12956.1 to require an association that delivers a copy of a declaration, governing document, or deed to a person who holds an ownership interest of record in property to also provide a Restrictive Covenant Modification form with specified procedural information. 

Construction of two (2) units on a single parcel zoned as single-family residential. (SB 9) California law will now permit the division, partial or full tear down of an existing single-family home to create two (2) separate residential units, which need not be attached and which are eligible to be sold separately.

Splitting of an existing parcel into two (2) separate parcels (SB 9)  This bill also permits urban lot splits in residential zones to create two (2) equal parcels of a minimum of 1,200 square feet.  The parcel split may operate in conjunction with SB 9’s allowance of two (2) separate residential units on a single parcel–allowing for four (4) units to ultimately be constructed on a parcel where only one single-family home may have existed (and even more units if ADUs and JADUs are also constructed on the newly subdivided parcels).

Penalties for Short Term Rentals (SB 60)  Authorizes local governments to increase penalties for individuals who violate short-term rental ordinances and create health and safety issues.

NEW LEGISLATION DISCUSSED MORE IN DEPTH

ELECTION BY ACCLAMATION: AB 502 PERMITS ELECTIONS BY ACCLAMATION FOR ALL ASSOCIATIONS, REGARDLESS OF SIZE, WHEN THE NUMBER OF CANDIDATES IS EQUAL TO OR LESS THAN THE NUMBER OF OPEN BOARD SEATS. AB502

There has been disagreement within the legal community as to whether California law permits uncontested director elections to be carried out by acclamation, especially in situations where the Association’s bylaws contain language permitting such a procedure. Our firm has always held that such a procedure is not permitted regardless of any language within an HOA’s Bylaws to the contrary. Our position is based on Civil Code section 5100(a) which provides that the Civil Code’s election procedures must be followed “[n]otwithstanding any other law or provision of the governing documents…” Accordingly, we have always taken the position that any Bylaw provisions purporting to permit elections by acclamation were superseded by Section 5100(a) of the California Civil Code.

This position was supported by the adoption of Senate Bill 323 (“SB 323”) in 2019,  which addressed the issue of elections by acclamation, and specified that such a procedure was only available to HOAs with 6,000 or more units. (Civil Code §5100(g)(1))  This demonstrated that the Legislature’s intent was to require HOAs with less than 6,000 units to incur the expense of conducting a full election (preparing, printing, and mailing ballots, etc.) in situations where the election is uncontested and the outcome of the election is already predetermined. 

However, this is no longer the situation as AB 502 was signed into law.  Effective January 1, 2022, HOAs will be available to utilize an acclamation procedure specified under new Civil Code section 5103, subject to certain requirements that must be satisfied during the pre-balloting process. Those requirements include (among others):

1. Holding a regular director election at least once every three (3) years;
2. Providing specified notices to the membership of the potential for the acclamation procedure to be utilized if the number of candidates does not exceed the number of board positions to be filled. This notice must be provided at least ninety (90) days before the nomination deadline, and another reminder notice must be provided between seven (7) and thirty (30) days before the nomination deadline;
3. Confirming receipt of the nomination within seven (7) business days of receipt of same;
4. Notifying a nominee as to whether they are qualified to be a candidate and, if not, the reason for the disqualification and the procedure to appeal the decision; and
5. The association board votes to consider the qualified candidates elected by acclamation at an open meeting for which the agenda item reflects the name of each qualified candidate that will be seated by acclamation if the item is approved.

Although the pre-election procedures are more burdensome (starting the process much earlier) and cumbersome, AB 502 provides much needed relief from meaningless elections. This does not mean, however, that an HOA is able to dispense with its annual meeting altogether, as the language of its CC&Rs or Bylaws may still require an annual meeting for other purposes. HOA Boards and management professionals should consult with their HOA attorney to understand the impact of the new law and the corresponding impact on their HOA’s annual meeting and director election procedure.

Another significant change in AB 502 is it resolves an inconsistency between candidate and director qualifications. Initially, Civil Code Section 5100 contained only candidate qualifications and was silent on whether directors also had to meet the same standards once elected as a candidate running for a director’s seat. SB 502 adds in Civil Code 5103(d) that if an association requires a nominee to comply with any of the candidacy requirements in its election rules, it shall also require a director to comply with the same requirements.

Finally, SB 502 also includes in the new Civil Code Section 5103 term limits as a permissible basis for disqualifying a candidate.

Recommendation

We recommend that Associations amend their election rules to outline these acclamation procedures to facilitate the association’s use of this somewhat cost effective, streamlined director election procedure.

INSPECTOR ELECTIONS AUTHORITY; LONGER DEADLINE FOR MEMBERSHIP MEETING SB 432

With respect to the authority of an inspector of elections, SB 432 amends Civil Code Section 5105 authorizing an inspector to appoint and oversee additional persons to verify signatures and to count and tabulate votes, as the inspector or inspectors deem appropriate, provided that such appointed persons meet the same requirements of an independent third party required of the inspector of elections.

Furthermore, SB 432 addresses a very important timing conflict that existed between the notice requirements in Civil Code Section 5115 and Corporations Code Section 7511 in the event of a recall election. Corporations Code Section 7511 mandated that a special meeting be scheduled no more than 90 days after the board received the request for the special meeting. Where a special meeting is requested to remove the entire board, a new board must be immediately elected triggering the notice requirements of Civil Code Section 5115 (or the Board would remain as lame ducks until the new Board is elected) – making compliance with the Corporations Code’s 90-day special meeting deadline impossible. SB 432 eliminates this conflict by extending the special meeting deadline to 150 days from the date of the request.

SB 432 also amends Civil Code Section 5105 to clarify that the “candidates list” includes the names and addresses of the individuals nominated for election to the board of directors.

Finally, SB 432 amends Civil Code Section 5200 (c), regarding records available for inspection by a member and clarifies that an association shall only maintain association elections materials for one (1) year after the election. This is consistent with Civil Code Section 5145, which requires a civil action for violation of the Elections Procedures be brought within one (1) year.

DOCUMENT DELIVERY AND PROVIDING PERSONAL INFORMATION: SB 392

SB 392 requires members provide the association with their preferred method of individual notifications from the association, either by mail or by email. Existing law specifies the methods by which an association may provide a document when a provision of the act requires “general delivery” or “general notice,” including posting the printed document in a prominent location accessible to all members (if designated for the posting of general notices by the association in its annual policy statement).

Beginning January 1, 2023, an association shall deliver a document in accordance with the member’s specified method of delivery. This bill allows an association, which maintains an internet website for the purpose of distributing information on association business to its members, to post general notice on the association’s internet website in a prominent location that is accessible to all members so long as the association’s website is designated as a location for posting general notices in the annual policy statement prepared pursuant to Section 5310.

SB 392 amends Civil Code Section 4041 to require that members annually provide the association with written notice of 1) the member’s specified method of receiving notices from the association by mail or by email, or both; 2) an alternative or secondary method of receiving notices from the association by mail, by email, or both; a valid email address, as well as the name, address and email of the owner’s legal representative, or other person who can be contacted in the event of the member’s extended absence from the separate interest. 

SB 392 also contains a provision that prohibits an association, or its managing agent, from selling or transmitting a member’s personal information to a third party without the consent of the member unless required by law.  Previously, some management companies, under their contracts, provide that they sell or transmit member data to outside organizations, but this is now prohibited.

Recommendation 

SB 392 requires that the association request the above required information from the member at least 30 days prior to the association distributing its Annual Budget Report.  Associations are advised to prepare and distribute a form to each member annually requesting the above information, and requiring it be returned to the association by a specified date.  If a member fails to provide this required information, the last mailing address provided or the property address shall be deemed the address to be used by the association.

ASSOCIATION FINANCES: AB 1101

The bill follows up on AB 2912, which passed a few years ago. AB 2912 brought some confusion to associations because it basically mandated that certain fund transfers go through the approval of the HOA Board. These are transfers that go over $10,000 or 5 percent of the association’s total deposits. The percentage requirement, though, meant that HOAs would need to recalculate time and again to ensure they remain within the threshold. This proved particularly difficult and expensive for smaller associations. The bill clarifies issues regarding financial transfers, fidelity coverage and management of association bank accounts.

The key clarification provided by AB 1101 concerns fund transfers requiring board approval. The bill Amends Civil Code 5502 requiring prior written approval for transfers as follows:

• The lesser of five thousand dollars ($5,000) or 5 percent of the estimated income in the annual operating budget, for associations with 50 or less separate interests.
• The lesser of ten thousand dollars ($10,000) or 5 percent of the estimated income in the annual operating budget, for associations with 51 or more separate interests. 

AB 1101 amends Civil Code 5380 to require the managing agent deposit association funds into a bank, savings association or credit unit and that the deposited funds are insured by the Federal Deposit Insurance Corporation, National Credit Union Administration Insurance Fund, or a guaranty corporation subject to Section 14858 of the Financial Code. This bill further requires that funds are deposited in accounts that protect the principal, and prohibits such association funds from being invested in stocks or high-risk investment options.

AB 1101 also puts an end to management’s ability to commingle funds, as the bill prohibits commingling of association funds with a managing agent’s funds, or with funds of other associations.

Finally, AB 1101 amends Civil Code Section 5806 regarding fidelity bond requirements. An association must maintain: fidelity crime insurance, employee dishonesty coverage, or their equivalent, for directors, officers and employees. The coverage shall include coverage for dishonest acts by a managing agent (person or company) and the managing agent’s employees. The amount of coverage shall be equal to or greater than the combined amount of reserves and the total of three months of assessments. The association cannot self-insure for these required coverages.

RENTAL RESTRICTIONS AND AMENDING GOVERNING DOCUMENTS: AB 1584

AB 1584 now expressly allows a board of directors to unilaterally amend the association’s governing documents to comply with AB 3182.  Boards now have until July 1, 2022, to take this action.  As you might recall, AB 3182 was a new law governing rental restrictions in homeowner associations which took effect on January 1, 2021.  Essentially, it allows HOAs to ban short term rentals of 30 days or less, while simultaneously voiding minimum lease terms of more than 30 days (i.e., no more 6-month or 1-year minimum lease terms).  Most HOA CC&Rs do not contain illegal “unreasonable” rental restrictions, but if they do, legal counsel should be involved to ensure the amendment is necessary and stays within the narrow limits of the revised Section 4741(f).

AB 3182 also allows associations to limit the total number of rentals to 25% or higher of the homes in the community.  AB 3182 originally required associations to amend their governing documents to conform with the new law by December 31, 2021, or pay damages for illegal enforcement of old CC&R provisions plus a civil penalty of $1,000. However, the legislature failed to acknowledge the significant challenges, member apathy, time and costs in obtaining the required approval of members and lenders for an amendment, as well as the practical possibility that member and lender approval might never be obtained.

Although our firm took the position that boards were allowed to unilaterally amend the CC&Rs (without member approval) solely to ensure that the CC&Rs comply with AB 3182, many HOA law firms have insisted member approval is necessary, hobbling their clients’ ability to comply.

Fortunately, the Legislature resolved this conflict with AB 1584, which expressly authorizes (and compels) the board of directors to amend CC&Rs (and any other governing documents) solely to comply with AB 3182.  For example, if your CC&Rs impose a (now void) 6-month minimum lease term, AB 1584 requires the board to unilaterally amend the CC&Rs to eliminate that requirement, or to reduce it to the legally compliant term of 30 days.

Similar to rule changes, the board will need to provide homeowners with a 28-day period to review and comment on the proposed amendment, and the decision on the amendment must be made at an open meeting of the board after consideration of any comments made by association members.  Also, as noted above, AB 1584 extends the compliance deadline from December 31, 2021, to July 1, 2022.

BOARD MEETINGS SB 391

Over the past year-plus, most associations have been conducting their meetings virtually (via Zoom, GoToMeeting, etc.) due to pandemic-related restrictions on gatherings, social distancing guidelines, and general safety concerns. All along, however, the conducting of entirely virtual association meetings (i.e., without any physical location where members could attend) has been without definitive legal authority and is contrary to a strict interpretation of statutory law. For example, with respect to board meetings, Civil Code §4090(b) requires that, if an open board meeting will be conducted by teleconference (through audio or video or both), “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 director or a person designated by the board shall be present at that location.” With respect to membership meetings (such as an association's annual meeting of members), Corporations Code §7510(f) provides that absent consent of the members to conduct such meetings by electronic transmission or electronic video screen communication, the meeting shall be held at a physical location. Nevertheless, the statutory “physical location” requirement for both board and membership meetings has generally been disregarded during the declared state of emergency resulting from the COVID-19 pandemic.

During the pandemic, associations had virtual meetings in which they saw widespread increase in member participation due to the ease of which homeowners could log into a meeting from any location. Conducting a teleconference board meeting generally requires “at least one director or person designated by the board” to be present at the physical location designated in the notice of the teleconference meeting. (Civ. Code § 4090(b).)  However, this physical location requirement could not be met during the pandemic which resulted in this emergency legislation.  Now, the physical location requirement does not apply to board meetings held under new Civil Code section 5450 during government emergencies, provided that all Section 5450 meeting requirements (discussed below) are satisfied. (Civ. Code § 5450(b).) SB 391 eliminated the need to provide a physical location if gathering in person is unsafe or impossible because an association is in an area affected by a federal, state or local emergency.

New Requirements

SB 391 adds a new section of the Civil Code, section 5450 which provides a board meeting may be held completely virtually, i.e., without any physical location being provided for the meeting, if the following conditions are met:

• Gathering in person is unsafe or impossible because the association is in an area affected by: 1) a disaster or emergency declared by the federal government; 2) a state of emergency proclaimed by the Governor; 3) an emergency proclaimed by local governing body.
• Notice of the first virtual meeting for a particular disaster or emergency affecting the association must be delivered to members by individual delivery (i.e. personal delivery or mailing). Notices for each virtual meeting must include:
  • Clear technical instructions on how to participate by teleconference
  • A telephone number and e-mail address of a person who can provide technical assistance with the teleconference process, both before and during the meeting; and
  • A reminder that a member may request individual delivery of meeting notices, with instructions on how to do so.
• Directors and members must have the ability to participate in the meeting in the same manner as if the meeting were held in person.
• Director resolutions must be made by roll call vote.
• If the meeting is conducted by videoconference, attendees must be given the option of participating by phone.
• If ballots are to be open and counted at a meeting conducted solely via teleconference, the camera must be placed in a location such that members can observe the inspector of elections counting and tabulating the votes.

Any association that meets without either providing a physical location where members may attend to watch or listen to the meeting, or without complying with the new requirements for completely virtual meetings, are subject to member lawsuits in which attorney’s fees, costs, and penalties of $500 for each violation may be awarded by the court.

NEW REQUIREMENTS FOR HOAS TO PROTECT THE CONFIDENTIALITY OF ANY MEMBER PARTICIPATING IN THE SAFE AT HOME PROGRAM: AB 611      

The Safe at Home Program allows for victims of domestic violence, sexual assault, stalking, human trafficking, or elder or dependent adult abuse to designate the Secretary of State as their agent for service of process and receipt of mail. The person’s actual address is kept confidential.

AB 611 adds new Civil Code § 5216 to clarify that HOAs must, upon request by a person who is an active participant in the program: use the Secretary of State’s address for HOA communications to that person; withhold or redact the person’s information from membership lists, HOA websites, etc. that would reveal the person’s name, community property address, or email address; and keep the person’s participation in the program confidential.

MEETINGS: STATE OF EMERGENCY: AB769

Existing law authorizes and regulates the formation and operation of a corporation, nonprofit public benefit corporation, nonprofit mutual benefit corporation, nonprofit religious corporation, or cooperative corporation. Existing law authorizes meetings of shareholders or members, as applicable, to be held at any place as stated or fixed in the bylaws, as specified, and provides that, subject to certain conditions, shareholders or members not physically present may participate in a meeting, be deemed present, and vote by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication. Existing law prohibits conducting a meeting of shareholders or members solely by electronic transmission, electronic video screen communication, conference telephone, or other remote communications unless all of the shareholders or members consent or the board determines it is necessary or appropriate because of an emergency, as defined.

This bill amends Corporations Code 7510 to authorize shareholders or members to also conduct a meeting of shareholders or members solely by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication if the meeting is conducted on or before June 30, 2022.

DISCRIMINATORY RESTRICTIONS. AB1469

Existing law requires a county recorder, title insurance company, escrow company, real estate broker, real estate agent, or association that delivers a copy of a declaration, governing document, or deed, to place a cover page or stamp on the first page of the previously recorded document stating that if the document contains any restriction that unlawfully discriminates based on any of the characteristics specified above, that document is void.

This bill amends Government Code Section 12956.1 to require a county recorder, title insurance company, escrow company, real estate broker, real estate agent, or association that delivers a copy of a declaration, governing document, or deed to a person who holds an ownership interest of record in property to also provide a Restrictive Covenant Modification form with specified procedural information.  The specific procedural information is provided in Government Code Section 12956.2, which was also amended by this bill.   

HOUSING DEVELOPMENT:  CONSTRUCTION OF TWO UNITS ON A SINGLE PARCEL OR SPLITTING THE PARCEL (SB 9)

SB 9 made significant revisions to the California Government Code effective January 1, 2022.  This bill is supposed to address the housing crisis by re-zoning single family lots to allow for duplexes and more. Below is an overview of some of the primary components of this rather detailed and extremely complicated legislation.

Construction of two (2) units on a single parcel zoned as single-family residential.  California law will now permit the division, partial or full tear down of an existing single-family home to create two (2) separate residential units, which need not be attached and which are eligible to be sold separately. A municipality will be required to ministerially approve such a project without any significant review or public comment.  Because this law will operate in conjunction with existing law permitting the construction of Accessory Dwelling Units (ADUs), it will allow even more units to be built on the parcel without public review. Local ordinances that would physically preclude construction of the two units cannot be enforced. Any parking requirements to be imposed by local ordinances must be limited to requiring only one “parking space” (not necessarily a garage) per residential unit, and must be eliminated entirely if the project is located within one-half mile of public transit or if there is a car share vehicle located within one block of the project.

Splitting of an existing parcel into two (2) separate parcels:  This bill also permits urban lot splits in residential zones to create two (2) equal parcels of a minimum of 1,200 square feet. It further prohibits the application of local requirements that would physically preclude the construction of two (2) units to be built on each split lot, subject to other requirements of questionable merit and enforceability (e.g., the ability for a local requirement to be imposed mandating that the owner of the parcel ‘certify’ that they will live in one of the units for at least the first three (3) years after the project’s completion). The parcel split may operate in conjunction with SB 9’s allowance of two (2) separate residential units on a single parcel–allowing for four (4) units to ultimately be constructed on a parcel where only one single-family home may have existed (and even more units if ADUs and JADUs are also constructed on the newly subdivided parcels).

What is the impact on Associations?  The common question/concern we are receiving in connection with SB 9 is whether it will override an Association’s governing documents that prohibit the type of development projects within HOAs that SB 9 is intended to provide.  For example, it is common for an HOA’s CC&Rs to contain provisions prohibiting homeowners from subdividing their lots.  Unfortunately, SB 9 is silent with respect to this issue and those in the HOA legal community are concerned that SB 9 could be construed as demonstrating public policy in favor of these types of projects.  Many Associations are now considering amending their CC&Rs to preclude lot splitting if the CC&Rs are silent.

LOCAL GOVERNMENTS TO INCREASE PENALTIES FOR INDIVIDUALS WHO VIOLATE SHORT-TERM RENTAL ORDINANCES SB 60

SB 60 authorizes local governments to increase penalties for individuals who violate short-term rental ordinances and create health and safety issues.

The new law, with certain exceptions, raises the maximum fines for violation of an ordinance relating to a residential short-term rental, as defined, that is an infraction and poses a threat to health or safety, to $1,500 for a first violation, $3,000 for a 2nd violation of the same ordinance within one year, and $5,000 for each additional violation of the same ordinance within one year of the first violation. The bill would make these violations subject to the process for granting a hardship waiver.

While not directly related to community associations, the new law provides some basis for associations to support higher fine amounts for owners who violate association Governing Documents related to short-term rentals.