New Legislation

AB 572. Assessment Limitation. Beginning January 1, 2025, new associations with affordable housing are limited to assessment increases for affordable housing to 5% plus cost of living, not to exceed 10% greater than the preceding regular assessment. This does not apply to associations with 20 units or less. “Affordable housing” means a unit occupied by lower and moderate-income households.

MANAGER TAKEAWAY: This legislation only concerns new construction for affordable housing. Nevertheless, it is good to keep this legislation in mind in case you do represent new associations with affordable housing.

AB 648. Virtual Meetings. This bill amends Civil Code §4090 and adds a new Section 4926 to the Civil Code. Beginning January 1, 2024, new Civil Code Section 4926 goes into effect which permits an association to conduct its open board meetings entirely by teleconference or videoconference (without a physical location), provided that all the following requirements are satisfied: a) the notice for each meeting conducted virtually under Section 4926 must include, in addition to other required content for meeting notices, all the following: i) Clear technical instructions on how to participate by teleconference or videoconference; ii) the telephone number and e-mail address of a person who can provide technical assistance with the teleconference or videoconference process, both before and during the meeting; and iii) a reminder that a member may request individual delivery of meeting notices, with instructions how to do so; b) every director and member must have the same ability to participate in the meeting that would exist if the meeting were held in person; and c) any vote of the directors at a virtual meeting must be conducted by a roll call vote. However, AB 648 did not have any impact on existing law governing association meetings at which ballots are counted and tabulated pursuant to Civil Code section 5120 as a physical location must still be designated.

MANAGER TAKEAWAY: Many communities came to believe in the benefits and convenience of videoconferencing as a replacement of live meetings during the pandemic, which the law allowed until the pandemic was declared as being over. This legislation makes it clear that associations may continue with this practice (and through teleconference as well – which was always allowed by the Corporations Code) subject to the conditions detailed above. The biggest takeaway is that videoconferencing and teleconferencing may be used for Board Meetings but not member meetings where ballots are counted. The statute appears to be silent as to member meetings for other purposes. The takeaway here is to inform your Boards of the requirements as well as the limitations of the new law. This is especially important when it comes to member meetings where ballots are counted, as there may be challenges to elections which were not done by a live meeting.

AB 1033. ADUs Into Condos. This bill amends Government Code sections 65852.2 and 65852.26. Local agencies can adopt ordinances to allow owners to convert their ADUs into condominiums (with association approval), which can then be sold separately from the main dwelling.

MANAGER TAKEAWAY: This legislation drastically affects the ownership, and now the potential sale, of Accessory Dwelling Units (ADUs) by allowing owners of ADUs to sell the ADU separately from the other dwelling unit or units on the property. This presents a number of challenges that include, at the very least, how to assess a separated ADU and how it even gets a separate address. Fortunately, the statute provides that association approval is necessary to allow a conversion to happen. This doesn’t include the usual requirement that the association “adopt reasonable rules and regulations” for the conversions, but that it only has to decide to let the conversions happen, or not let it. This point of view, however, is a short-sighted view, and managers may wish to advise their clients to consult with legal counsel about such things as adopting rules and regulations anyway, and what recorded documents will be necessary for an owner to convert an ADU to a condominium or a separate residence and sell it separately from the main dwelling on the property. One big concern for legal counsel will be making sure that the converted condominium is actually covered by the CC&Rs. There are others concerns as well. Finally, the association may want to have any such proposed conversions be subject to the normal architectural approval process, to at least have a mechanism in place should applications for such conversions be made, as there are many nuances involved. The Judge Law Firm will be publishing an article about this in the near future, so managers should be looking for that.

AB 1458. Adjourned Meeting Quorum. This bill amends Civil Code section 5115 and Corporations Code section 7512. If an association cannot meet quorum to elect directors, this bill amends Corporations Code 7512 to authorize a corporation that is a common interest development to adjourn a membership meeting to a date at least 20 days after the adjourned proceeding, at which time the quorum required for purposes of a membership meeting shall be 20% of the voting members present in person, by proxy, or by secret written ballot received.

MANAGER TAKEAWAY: This legislation solves the big problem of getting a quorum at an adjourned meeting for the election of directors by specifying the exact quorum of the adjourned meeting to twenty percent (20%) of the voting power in person, by ballot and by proxy. Previously, the bylaws would control this issue, and each set of bylaws was different as to the adjourned quorum, with many of them not even allowing for a reduced quorum and the rest reducing the quorum to a lower amount, but still not sufficient.

There is a potential hidden trap in this legislation. The Corporations Code provides that when a quorum is less thanone-third, the only business that may be conducted at the meeting is what is on the agenda. In other words, no new business may be introduced or voted upon by the reduced quorum. Though it is not necessary, managers may advise their Boards to consider amending the bylaws to conform to the quorum provisions of this statute. Often people become confused or make mistakes by relying on the governing documents in making decisions, when the governing documents are, as here, superseded by the law.

AB 1572. Potable Water. This bill amends Water Code sections 10608.12 and 10608.14. Beginning January 1, 2029, associations cannot use potable water to irrigate nonfunctional turf, which is defined as turf enclosed to permanently preclude human access for recreation, and turf in street rights-of-way and parking lots. Functional turf is defined to include turf located in a recreational use area, community space, or pet exercise areas.

MANAGER TAKEAWAY: Managers should advise their Associations of this new law and begin working with their landscapers to convert nonfunctional turf to drought resistant plants or artificial turf wherever appropriate or to determine how they can irrigate those areas with non potable water.

AB 1764. Election Term Limits. This bill amends Civil Code sections 5103 and 5105. If term limits are in place, an incumbent director must step down when termed out. If a nominee for the board is disqualified, existing directors must comply with the same requirements when the directors are up for election.

MANAGER TAKEAWAY: Under existing law certain defined steps must be taken to disqualify a candidate seeking office as a Board member. These include, among other things, the right of the to be disqualified candidate to request and have alternative dispute resolution as specified in current law. This statute extends the list of disqualified candidates to include directors who are disqualified because they have “termed out.” Of course, this is only the case if the bylaws impose term limits in the first case, which is rarely the case.

SB 71. Small Claims Court. Starting January 1, 2024, small claims limits will be raised for individuals from $10,000 to $12,500. For companies or corporations, like associations, the limit is increased from $5,000 to $6,250. This bill also increases the limit on the amount in controversy for limited civil actions in Superior Court (which used to be called Municipal Court actions) from $25,000 to $35,000.

MANAGER TAKEAWAY: The statute is somewhat unremarkable and only applies to associations that use small claims court for assessment collection, which is not advisable for number of very good reasons that will be more fully explained in an upcoming article from The Judge Law Firm to managers. Other than that, the statute merely raises the ceiling for small claims by a mere $1,250.00, since corporate claims, like association assessment claims, are presently limited to $5,000.00 anyway.

Lender Guidelines. Fannie Mae and Freddie Mac issued new
lender guidelines that impact most condominium developments in California. They require more documentation regarding insurance, building inspections, deferred maintenance, and structural safety issues. Boards must make their best efforts to comply otherwise, associations will be listed as "ineligible," thereby making it difficult for owners to sell their units.

MANAGER TAKEAWAY: The change in lender guidelinesreferred to here is too complicated to be treated in a short paragraph. It requires an explanation of the new requirements, as well as the question of whether association Boards elect to not even try to comply, which means buyers in the community will have to resort to other forms of financing. The Judge Law Firm will be publishing a thorough treatment of this topic after the first of the year.

Corporate Transparency Act. Beginning January 1, 2025, associations with less than $5 million in gross receipts and fewer than 20 full-time employees will need to file the names of their directors, their birth dates, home address, and driver's license information with the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury. Associations must include the identity of the person with substantial control over the association's finances. The purpose of this reporting is to track suspicious activity, money laundering, and terrorist financing, none of which community associations are involved with. The Community Associations Institute is working to exempt associations from this regulation. For more information, see CAI's website.

MANAGER TAKEAWAY: Since this law doesn’t go into effect until 2025, managers should keep an eye on articles for The Judge Law Firm and the Community Associations Institute throughout the year to see if the exemption for associations is granted by the U.S. Department of the Treasury. If nothing has happened by the end of October 2024, it is advised that associations consult their legal counsel about complying with the law if the association is within the parameters of the new law.