Articles: Community Association Law – Page 3

Elections by Acclamation – Governor Signed AB 502

Assembly Bill 502 (“AB 502”), which provides for election by acclamation for all California residential community associations, was signed by the Governor and chaptered on October 5, 2021. AB 502 amends Civil Code section 5100 and adds a new section 5103 to the Civil Code.

You might recall that new legislation last year gave associations of over 6,000 units the right to elect directors by acclamation if, as of the close of nominations, the number of director nominees was not more than the number of director positions to fill at the upcoming election. This right will be now extended to all California residential community associations as of January 1, 2022, subject to certain notice requirements. The requirements include providing an initial notice to the members at least 90 days before the deadline for submitting candidate nominations. This notice must contain the following information: the number of board positions to be filled at the upcoming election, the manner in which nominations can be submitted, the deadline for submitting nominations, and a statement informing the members about the possible election by acclamation. A reminder notice between seven (7) and thirty (30) days before the deadline for submitting nominations is also required. Other requirements include acknowledging receipt of any nominations within seven (7) business days of receipt, advising the nominee if they qualify as a candidate, or the reason a nominee is not qualified to be a candidate and how the nominee may appeal the disqualification. To qualify to conduct an election by acclamation, the association must have held a regular election in the last three years, i.e., a director election utilizing the secret balloting process.

Also, AB 502 provides that “an association may disqualify a nominee if the person has served the maximum number of terms or sequential terms allowed by the association.” This allows for term limits. However, AB 502 also provides that if an association disqualifies a nominee because that person is termed out, then the association’s election rules shall also require a director to comply with the same requirement.

To learn more, register to attend our Legal Symposium.

Download our Election by Acclamation Process Timeline Here.
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Records Retention Policy – Generic

Association Records

This document is meant to provide general guidance on the types of records listed below and does not purport to include all categories of Association records. We encourage community associations to work with their counsel to answer specific questions unique to the Association’s document storage and retention practices.

Association shall retain all records of all kinds for the first eleven years of operation, following completion of the development. If the Association has initiated litigation, or has any information suggesting litigation will be initiated, no records shall be destroyed pending completion of the litigation, and only upon review by counsel for purposes of evaluation of “litigation hold” requirements concerning document retention.

Subject to compliance with litigation holds requiring forbearance from destruction of records which may be required for production in the litigation proceeding, following the eleventh year after completion of the original construction of the property, Association records will be maintained as follows:

Type of Record	Retention Period[1]	Electronic Storage OK	Keep Hard Copy[2]
Corporate documents (Articles of Incorporation, Governing Documents, Rules & Regulations including all changes and amendments)	Permanent	X
Minutes of Meetings (Membership Meetings, Board of Directors Meetings in Open and Executive Session (Keep Executive Session Minutes separate), Board Organizational Meetings, Board Committee Meetings)	Permanent	X
Records of Board Elections, Special Elections, Special Assessment Votes, and Any Other Votes of the Membership	Permanent	X
Association and Board Policies	Permanent	X
Resolutions of the Board	Permanent	X
Financial Reports and Documents (Annual Budgets, Year-end Financial Reports)	Permanent	X
Financial Reports and Documents – continued (Annual Audits, Federal and State Tax Returns, Financial Accounting Electronic Files)[3]	Permanent	X	X
Association Candidate Registration List and Voter Registration List For the First Year from Notice of Election Results Provided to Board and Members or any Challenge to Election, whichever is later, held by Inspector of Elections or its Designee, Then by Association Until 3 Fiscal Years have Elapsed	3 Fiscal Years	X	X
Association Membership Lists* Except for Membership Lists Used to Establish Voting Rights, which shall be 3 Fiscal Years from Conclusion of Vote or Election Challenge.*	As Updated*	X
Legal Documents (including Records of Legal Actions for delinquent Fee Payments, Claims and Litigation Files where Association is a Party, Legal Opinions on which Association Actions were based) Settlement Agreements with Original Wet Signatures[4]	Permanent	X	X (Keep Hard Copies With Original Wet Signatures)
Procurement Records (Purchase Orders, Invoices, Check Requests, Competitive Bidding and Sole Source Documentation)	10 years	X
Reserve Studies	10 years	X
Insurance Policies and Records of Claims against Insurance Policies	10 years	X
Financial Records (Bank Statements, Deposit Slips, Cancelled Checks, Check Reconciliations, General Ledgers, Income and Expense Statements)	10 years	X
Employee Personnel Records (After Termination)	10 years	X
Employee Expense Records	6 years	X
Accounts Receivable and Payable Records	6 years	X
Expired and Terminated Contracts (With Original Wet Signatures)[5]	At least 6 years[6]	X	X
General Correspondence (Including Emails)	4 years	X
Ballots, Balloting Envelopes, Proxies For the First Year from Notice of Election Results Provided to Board and Members or any Challenge to Election, whichever is later, held by Inspector of Elections or its Designee, then by Association Until 3 Fiscal Years have Elapsed	3 Fiscal Years	X	X
Judgments and Recorded Abstracts	Until the Judgment is Satisfied	X
Architectural Applications and Approvals (With Non-Document Materials or Samples that Cannot Be Easily Scanned)[7]	Permanent	X	X (Keep Materials and Samples)
Recorded Easements, Licenses, Maintenance and Indemnity Agreements and Similar Documents (With Original Wet Signatures)[8]	Permanent	X	X (Keep Hard Copies with Original Wet Signatures)
Reports with Original Engineers’ Stamps	Permanent	X	X
Any Design Build Plans or Specifications that Cannot be Easily Scanned	Permanent	X	X
Written Reports Generated from Inspections Pursuant to Civil Code 5551	18 years	X

[1] For records with specific “retention periods” described herein, an Association may wish to continue to maintain the records electronically, even beyond the “retention period,” unless the Board has adopted a separate policy related to the purging of its records. However, this issue should be discussed with Association’s legal counsel for particularized advice on specific records.

[2] Certain records subject to inspection pursuant to California law in Civil Code (sections 5200 et seq.) and Corporations Code (sections 8310 et seq.), must be maintained “in written form” by the Association. We interpret “written form” to include electronically stored information, so long as the Association may print the record and with the exception of active records, the record cannot be altered.

[3] The Association should seek advice from its CPA or tax expert before discarding any tax-related related records and should seek advice on maintaining original hard copies of tax-related records for a certain time period.

[4] If the Association has in its possession, signed Settlement Agreements with original wet signatures, these hard copies with original wet signatures should be maintained. If the records do not contain wet signatures, electronic storage only is acceptable.

[5] If the Association has contracts with original wet signatures, hard copies should be kept for the full 6-year period, and thereafter the Association may choose to maintain the contracts electronically.

[6] The Association should review all contracts prior to discarding the records to determine if there are applicable warranty periods, or if it has any insurance obligations to maintain the records. Consult legal counsel for advice on this issue.

[7] If the Architectural Application contains materials or other samples that are not documents and cannot be easily scanned, the original sample materials should be maintained.

[8] If the Association maintains original copies of any wet signed original recorded documents, those physical records should be kept. If the record is not a wet signed version, electronic storage only is acceptable.

New Civil Code Section 5450 Provides Requirements for Teleconference Board and Member Meetings During Government Declared States of Emergency

On September 23, 2021, Governor Gavin Newsom signed Senate Bill No. 391 (“SB 391”) into law as urgency legislation. SB 391 adds Section 5450 to the Civil Code, which allows California common interest developments (“CIDs”) to conduct board and member meetings via teleconference if gathering in person is unsafe or impossible because the CID is in an area affected by a declared federal, state, or local emergency.

Under current law, a board meeting can be conducted via teleconference (audio or video, or both) as long as all of the directors participating in the meeting are able to hear one another. (Civil Code section 4090(b).) For open board meetings conducted via teleconference, current Section 4090(b) requires that the notice of the teleconference meeting identify at least “one physical location where members of the association may attend and at least one director or a person designated by the board… be present at that location.” As we are all well aware, this in-person requirement proved difficult during the COVID-19 pandemic as gathering with persons outside of one’s immediate household could lead to the spread/transmission of the virus. Consequently, Civil Code section 4090(b) made it impossible for CID boards to simultaneously comply with State and local no-gathering orders and the Section 4090 requirement of providing a physical location where members could attend a board teleconference meeting in person.

The California Legislature recognized that the Civil Code did not effectively provide CID boards with a way to conduct business during a disaster or emergency so it passed SB 391 to add Section 5450 to the Civil Code in order to address this problem.

If your association is continuing to conduct board and/or membership meetings solely via telephone or web-conference platforms because of the ongoing pandemic, your association must immediately comply with the requirements of Civil Code section 5450(b). Be sure to note the notice requirements of (b)(1) and (b)(2) below.

Civil Code section 5450 provides as follows:

(a) This section only applies to a common interest development if gathering in person is unsafe or impossible because the common interest development is in an area affected by one or more of the following conditions:

(1) A state of disaster or emergency declared by the federal government.

(2) A state of emergency proclaimed by the Governor under Section 8625 of the Government Code.

(3) A local emergency proclaimed by a local governing body or official under Section 8630 of the Government Code.

(b) Notwithstanding any other law or the association’s governing documents, and except as provided in subdivision (d), a board meeting or meeting of the members may be conducted entirely by teleconference, without any physical location being held open for the attendance of any director or member, if all of the following conditions are satisfied:

(1) Notice of the first meeting that is conducted under this section for a particular disaster or emergency affecting the association is delivered to members by individual delivery.

(2) The notice for each meeting conducted under this section includes, in addition to other required content for meeting notices, all of the following:

(A) Clear technical instructions on how to participate by teleconference.

(B) The telephone number and electronic mail address of a person who can provide technical assistance with the teleconference process, both before and during the meeting.

(C) A reminder that a member may request individual delivery of meeting notices, with instructions on how to do so.

(3) Every director and member has the same ability to participate in the meeting that would exist if the meeting were held in person.

(4) Any vote of the directors shall be conducted by a roll call vote.

(5) Any person who is entitled to participate in the meeting shall be given the option of participating by telephone.

(c) If, as a result of the disaster or emergency, mail delivery or retrieval is not possible at any association onsite address and the address on file with the association for that member is the same association onsite address, then the association shall send the notice of the first meeting referenced in paragraph (1) of subdivision (b) to any email address provided to the association by that member, in writing, pursuant to paragraph (2) of subdivision (a) of Section 4040 or subdivision (b) of Section 4041.

(d) Subdivision (b) does not apply to a meeting at which ballots are counted and tabulated pursuant to Section 5120, unless both of the following conditions are met:

(1) The meeting at which ballots are to be counted and tabulated is conducted by video conference.

(2) The camera is placed in a location such that members can witness the inspector of elections counting and tabulating the votes.

(e) The remedies available pursuant to Section 4955 shall also be available to address violations of this section.

…

Again, please note that Civil Code section 5450 only applies if gathering in person is unsafe or impossible because your CID is in an area affected by a federal, state or local disaster or emergency declaration or proclamation.

Also, please note for purposes of Section 5450(b)(4) a “roll call” vote means the names of directors voting and how they voted are recorded in the minutes. For the purposes of Section 5450(c), Civil Code section 4040 defines “individual delivery” as the association delivering a document(s) to an owner or owners via personal delivery, certain specified methods of mail delivery, or by email (if the recipient has consented in writing or by email to receive association notices via email).

Finally, Section 5450(d) is instructive as to how members may witness the counting and tabulation of ballots as required by Civil Code section 5120 should that process need to be conducted by teleconference pursuant to Section 5450.

Your board of directors should reach out to your association’s legal counsel for advice should the board have any questions regarding the application or mechanics of Civil Code section 5450.

Neighbor to Neighbor Disputes and Balancing the Liability Line

By Jillian M. Wright, Esq.

Neighbor to Neighbor Disputes and Balancing the Liability Line

With more people working from home in the last year, you might have noticed an increase in neighbor disputes. Often, neighbors will turn to the association first to resolve the dispute. The board must determine when a neighbor-to-neighbor dispute becomes an association issue; which complaints are based merely on bad relations between the neighbors and which are based on substantial and documented violations of the governing documents? What to do if the complaints are substantiated?

When and How to Investigate

It can be tempting to write off neighbors’ complaints as outside the role of the association. However, the board is tasked with enforcing the governing documents. If an association fails to conduct an adequate investigation into a complaint which might involve a violation of the governing documents, an owner could sue the association for failure to enforce those governing documents. Typically, governing documents prohibit noxious, offensive behaviors and/or nuisances. One of the primary neighbor to neighbor disputes occurs when one or both parties are accusing the other of committing a nuisance – whether it be an offensive noise, sight, or smell.

When an association receives a nuisance complaint the first step should be to investigate the claim. In-person investigations by the manager or non-interested board member should be the first step, if at all possible as this is often the best way to determine if the alleged nuisance is offensive to a reasonable person.

If the offensive conduct happens late at night, seek other evidence to substantiate the complaint. Ask other neighbors about their experience. Ask for videos or pictures with time stamps.

If the dispute takes place solely online or on social media, then the association should not intervene. Governing documents typically define nuisance as actions affecting a residents’ ability to quiet enjoyment of the common area and separate interest property. As such, complaints of online conduct should be directed to the website host (such as Facebook or Nextdoor) or law enforcement as necessary. However, if the dispute takes place on the association’s own forum the board may need to institute codes of conduct and decorum or limit posting rights in order to avoid defamation claims.

Additionally, if a resident complains that their neighbor has discriminated against them based on their protected class (including race, color, religion, national original, sex, disability and familial status) federal law requires the association to investigate (See Code of Fed. Reg. §100.7(a)(1)(iii)). Failure to investigate and enforce quickly could result in liability for the association.

However, if an association acts too quickly, without investigating, it could also face liability. For example, if an association sends a violation letter to an owner who is a member of a protected class, that owner could allege that the association’s enforcement was based solely on the board’s discriminatory beliefs. If the association did not investigate or substantiate the neighbor’s complaint, it may not have enough evidence to disprove this allegation.

When and How to Enforce

If a complaint is substantiated, then the association needs to follow the enforcement procedure within the governing documents: send the violation notice and/or call the offending owners to a hearing at which the association can impose fines or suspend privileges. Alternatively, boards can request owners mitigate the alleged nuisance, for example, lay down rugs to dampen sound or insert insulation to lessen the transmission of smoke smell.

If basic enforcement does not garner results, the board may need to consider litigation (and mediation prior, if necessitated by Civil Code §5925 et seq.). However, while the board is dutybound to enforce the governing documents, the law does not necessarily require the association to see the matter through to the end. In Beehan v. Lido (1977) 70 Cal.App.3d 858, the court held that a board’s decision whether or not to file an action to enforce the CC&Rs is governed by the business judgment rule. If the board determines that filing suit is not in the best interest of the association after reasonable inquiry, then the complaining neighbor has the right to bring suit pursuant to Civil Code §5975.

Tools for Enforcement or Resolution

Common interest developments are seen as quasi-governmental organizations, so owners often assume associations’ power reach farther than it does. Associations should make clear to owners the limited scope of the association’s authority and offer tools to help neighbors address issues with each other directly.

One tool is law enforcement. An association cannot and should not guarantee a resident’s safety. Complaints of violence, harassment, or threats of violence should be directed to law enforcement. An association may have a corresponding role to law enforcement if the actions or threats are directed toward board members or vendors or violate the governing documents but an association’s ability to intervene to prevent or stop someone’s behavior may not be effective remedies when someone is potentially committing a crime.

Another little known tool to neighbors is mediation. Some dispute resolution centers offer low or no-cost mediation. California’s Department of Consumer Affairs has a list of mediators which offer these services and the local county bar association may offer more options as well. If owners seek mediation, the association is not obligated to participate.

In sum, this is a difficult balancing act. An association could face liability for both refusing to get involved and getting involved too soon, without a proper investigation. As always, consult legal counsel with questions.

This article was originally published by CACM in the Fall, 2021 Law Journal.

Enforcement of Short-term Rental Bans: Brown v. Montage at Mission Hills

By Jillian M. Wright, Esq.

Enforcement of short-term rental bans for common interest developments (“CID”) just got more complicated thanks to a recent California Court of Appeals decision.

In the recent case of Brown v. Montage at Mission Hills, Inc. (2021) 68 Cal.App.5th 124, the California Court of Appeal, Fourth District found that a CID cannot require a rental to be for a minimum term for homeowners who owned prior to the CID adopting that requirement pursuant to Civil Code section 4740. In this case, Brown purchased a unit for the express purpose of renting it out as a short-term rental. Montage at Mission Hills later adopted a 30-day minimum rental period. Brown sued on the basis that she was exempt from that requirement because Civil Code section 4740 provides that homeowners are not subject to governing document provisions that “prohibit[ ] the rental or leasing of any of the separate interests … unless that governing document, or amendment thereto, was effective prior to the date the owner acquired title to their separate interest.”

The appellate court sided with Brown and found that minimum rental terms are rental prohibitions and not rental restrictions. Therefore, a short-term rental ban would not apply to homeowners who purchased prior to the ban’s adoption. The appellate court noted that “[t]he legislative history indicates that the Legislature’s intention was to ensure that owners maintained all rental and leasing rights they had at the time of purchase.”

What does this mean for your association?

If you have a minimum rental term in your governing documents it may not be enforceable against all homeowners, depending on the language of the provision and when it was adopted. If you have questions about the enforceability of your association’s minimum rental term, please contact us or your association’s legal counsel for further guidance.

CAI-CLAC 2021 Virtual Legislative “Week” at the Capitol

By Kieran J. Purcell, Esq.

Each year, California Community Association (CAI) members visit Sacramento to educate legislators on current issues affecting California’s 55,000 Community Associations. With COVID-19 and in person events still a concern at that time, your CAI-California Legislative Action Committee (CLAC) conducted a four (4) day virtual CAI-CLAC Legislative “Week” at the Capitol, held April 12, 2021 – April 15, 2021.

The event was open to all that had an interest in advocating on behalf of California communities and included forty-eight Homeowners, Board Members, Community Managers, and Business Partners from the San Diego Chapter.

All attendees had the opportunity to attend informative briefing sessions with CAI-CLACs Legislative Advocate Louie Brown, and learn what new changes are on the horizon. During the week the eight chapters each had two or three virtual advocacy sessions with legislators and staffers from their respective districts. The sessions focused on Bills that were identified as being important by the CLAC Delegate body. These included SB 9 (lot splitting), SB 391 (emergency virtual meetings), AB 1101 (financial protections), and AB 1410 (limits on authority).

The San Diego Chapter attendees virtually met with representatives of Senate Pro Tem Toni Atkins, Assembly Member Chris Ward and representatives of Senator Patricia Bates. The Legislators and their staffs all noted and remarked how impressive it was to have forty-eight San Diego Chapter members participating in these virtual meetings.

These Legislative meetings served multiple purposes including, educating legislators, seeking support for specific bills, and showing appreciation for past support. Without the expense of travel for the event this year, CAI-CLAC was happy to have over 250 attendees and experience a significant growth in attendance from past in person events. In their post event survey responses, all responders stated their appreciation for the opportunity to participate in the legislative process and advocate on behalf of California community associations.

For more information on the bills that CAI-CLAC is currently working on for California homeowners and their associations, please visit current campaigns at our website at www.caiclac.com/current-campaigns.

Thank you to everyone from the San Diego Chapter who attended Virtual Leg Week! One of the strengths of CAI as a whole and the San Diego Chapter specifically, is our knowledgeable and diverse membership. It was a great experience to be able to showcase the San Diego Chapter to area Legislators and our CAI-CLAC colleagues throughout California. The San Diego Chapter was quite impressive when it came together and united for a common goal.

Kieran Purcell is a shareholder with Epsten, APC. He currently serves as a Legislative Co-Chair of CAI-CLAC, is a CLAC Delegate for the San Diego Chapter and a past President of the San Diego Chapter. You can reach Kieran at [email protected] or 858.527.0111.

This article was originally published in the Summer 2021 Issue of San Diego Community Insider by the San Diego Community Association Institute (www.cai-sd.org).

Agenda Setting: Who, When, and How?

By Jillian M. Wright, Esq.

Setting the agenda for a board meeting is an important parliamentary protocol as the agenda establishes what will be discussed at the upcoming meeting. Though an agenda is required by the California Civil Code, California law does not specify how to set the agenda and association governing documents are often silent on the issue.

California’s Open Meeting Act (“Act”) (Civ. Code §4900 et seq.) was established with the intent of increasing transparency of the conduct of board business in common interest developments in an effort to keep owners involved and aware of board business. The Act prohibits boards from discussing or acting on an item of board business outside of a board meeting (Civ. Code §4910(a)). Civil Code section 4930 also prohibits boards from discussing any board business which was not previously placed on the agenda prior to the meeting with some exceptions outlined in Civil Code section 4930 (b) through (d) and discussed below. Thus, agendas are more than just a loose guide for meetings; they restrict what boards can discuss and act on. If an item of business is not on the agenda, then generally a board cannot act on that item unless certain criteria are met.

Agenda Setting Protocols – Determining The Who, When and How

Who May Set and Place Items on the Agenda?

Your association’s governing documents may expressly provide who may place items on board meeting agendas and how. However, if your association’s governing documents are silent on these issues, your board should consider adopting an agenda setting protocol. Such a protocol should provide which director sets the agenda (generally we see board presidents handling this task), who may place an item of business on the agenda, how that is accomplished, and any requisite deadlines.

Regarding who may place an item of business on the agenda, California law does not provide any guidance on this issue. However, Corporations Code section 7211(a)(1) states that meetings of the board may be called by the board president, vice president, secretary, or any two directors. If the Corporations Code gives these individuals the power to call a board meeting, then by analogy the board president, vice president, secretary, or any two directors should have the power to place an item on the agenda for that meeting. Therefore, we generally recommend that agenda setting protocols provide that the board president, vice president, secretary or two or more directors may place items of board business on the board meeting agenda. Non-board member owners should not be given the power to place matters on the agenda.

Agenda item requests may be emailed to the association’s community manager or the designated board member responsible for setting the agenda. Whatever method is used to set the agenda, be careful not to violate the Open Meeting Act by having a quorum of the board discussing or debating what to place on the agenda. Simply emailing a request for an item to be added to the agenda does not violate the Open Meeting Act.

When Must the Agenda be Finalized and Posted?

Agendas must be included with the notice of the meeting. Associations must give general notice of the meeting at least four days before a regular (open) session board meeting and at least two days before an executive session board meeting. (Civ. Code §4920). In order to meet these deadlines, the board adopted protocol should provide that requests for items to be added to the proposed agenda be sent to the person designated to prepare the agenda at least 24-48 hours prior to when the notice and agenda will be posted.

How Can Agenda Items be Added to an Agenda at a Meeting?

There are some instances where a board can add an agenda item at a meeting:

If the board determines that an emergency situation exists (i.e., there are circumstances that could not have been reasonably foreseen by the board, which require immediate attention and possible action by the board which make it impracticable to provide requisite notice), then the board may add that emergency issue to that meeting’s agenda by a vote of the majority of the board. (Civ. Code §4930(d)(1).)
If the board determines that there is a need to take immediate action on issue and that need for action came to the attention of the board after the agenda was posted, the board may, by a vote of two-thirds of the directors present at the meeting (or if less than two-thirds of the total membership of the board is present at the meeting, then my unanimous vote of the directors present), add that item to that meeting’s agenda. (Civ. Code §4930(d)(2).)
If the item appeared on the agenda for a prior meeting that occurred not more than 30 days before the date of the current meeting and at that prior meeting action on that item was continued to the current meeting. (Civ. Code §4930(d)(3).)

If the proposed agenda item does not meet one of the above, then that item cannot be added to the agenda at the meeting. However, the board can direct the community manager or director designated to set the next meeting agenda to add that item to the agenda for that future meeting.

If the proposed agenda items meet a Civil Code section 4930 exception, then the board should first vote to add the item to the agenda. Once the board votes to add the item to the agenda, then further board discussion and action may be taken on the agenda item.

In sum, if your governing documents do not address the who and how of setting board meeting agendas, your board should consider adopting a protocol in order to clearly provide a procedure as to how board meeting agendas are handled.

Be forward-thinking and consider preparing and adopting such a protocol to prevent future unnecessary strife amongst board members. Please contact our office if your association needs assistance in preparing an agenda setting protocol.

AB 3182 Q&A

On September 28, 2020, Governor Gavin Newsom signed into law Assembly Bill 3182 (“AB 3182”). AB 3182, among other things, amends Civil Code section 4740 and adds new Civil Code section 4741. AB 3182 may substantially change the way in which community associations address rentals. These changes take effect on January 1, 2021.

The ultimate effects of AB 3182 are currently unknown and the community association legal community is grappling with how to interpret this new law and its impacts.

Our firm, however, endeavors to provide timely information on such important legal matters impacting community associations so we are sending this update now although the full implications of this new law are presently unknown.

As such, we have prepared the below Q&A as an educational tool only. Please note:

Nothing below should be construed as legal advice.
Discussions surrounding AB 3182 are ongoing and as our understanding of this new law evolves the answers below are subject to change.
Contact your community association’s legal counsel for further information.

Q1. If my community association has a minimum rental period of 30 days or less in its governing documents, what must we do in light of the new law?

A. Nothing. A minimum rental period of 30 days or less does not violate the new law. Section 4741(c) specifically states, “This section does not prohibit a common interest development from adopting and enforcing a provision in a governing document that prohibits transient or short-term rental of a separate property interest for a period of 30 days or less.”

Q2. If my community association has a minimum rental period of more than 30 days in its governing documents, does the new law require us to amend our governing documents?

A. Section 4741(c) is ambiguous on this point. The community association legal community is currently split as to how to interpret this provision. The most conservative reading of subsection (c) is that minimum rental periods longer than thirty (30) days are unenforceable. If your community association’s governing documents contain a provision which has a minimal rental period longer than 30 days, please contact your legal counsel for additional guidance.

Q3. What if my community association has a rental cap of less than 25% of the separate interests?

A. If your community association’s governing documents place a limit on the total number of separate interests that may be rented at one time, and the limit is less than 25% of all separate interests, then that governing document must be amended to comply with the new law. If the document is not amended, the rental cap would be completely unenforceable.

Q4. What if my community association has a rental cap of 25% or more of the separate interests?

A. If your community association’s governing documents place a limit on the total number of separate interests that may be rented at one time, and the limit is 25% or more of all separate interests, then that governing document complies with the new law and no amendment is necessary.

Q5. If my community association has a percentage rental cap, does a rented ADU or JADU count towards the rental cap?

A. No. The rental cap refers to “separate interests” which section 4741(d) makes clear does not include ADUs or JADUs. This means that if an owner resides in either the primary residence, ADU, or JADU none of these may be counted as rented or leased for purposes of the community association’s rental cap (Civil Code section 4741(e)).

Q6. If my community association’s CC&Rs do not comply with the new law, do we have to amend the CC&Rs?

A. Amending the CC&Rs is the most conservative approach. However, there is a split in the legal community as to whether adopting a rule to comply with the new law would suffice (see question 9 below for further discussion on this point). Please contact your legal counsel for additional guidance.

Q7. If my community association must amend its CC&Rs in light of the new law, does that amendment require a membership vote, or can our board record a CC&R amendment without the consent of the members?

A. If our firm prepared your community association’s restated CC&Rs, it is possible those documents already include language that permit a board to record CC&R amendments to comply with the new law without the consent of members. However, in the absence of such language in your CC&Rs giving the board the power to make amendments, we believe the members would have to vote to approve the CC&R amendments.

Q8. If a membership vote is held to approve CC&R amendments, what happens if the members and/or lenders (if required) reject amendments to the CC&Rs to conform with the new law?

A. Under certain circumstances a community association may seek court approval of those proposed amendments through Civil Code section 4275 or Corporations Code section 7515 based on the actual outcome of the vote (although, seeking court approval might not be necessary). Civil Code section 4741(g) states, “A common interest development that willfully violates this section shall be liable to the applicant or other party for actual damages, and shall pay a civil penalty to the applicant or other party in an amount not to exceed one thousand dollars ($1,000).” If a community association puts the matter up for a vote of the members and the members do not approve it, arguably the association will not have willfully violated the law. If a community association does not seek judicial approval of the amendment, see #9 below for a possible option.

Q9. Could my community association simply adopt rules that comply with the new law instead of amending the CC&Rs?

A. It’s unclear. It would appear that existing rental provisions which violate the new law would become unenforceable under the new law. There is an argument that the board could simply enact a rule to clean up the existing provisions to regulate rentals in compliance with the new law, however, section 4741(g) states that an amendment is required. We believe boards should attempt a membership vote to approve any required CC&R amendments. Then, if that fails, boards could enact rules that comply with the new law. Whether a rule is sufficient to comply with the law is questionable. There is a body of law that suggests that members must vote on the issue of rental restrictions, so a rule might not be sufficient (and the association could not enact new rental restrictions without member consent). Further, existing law (Civil Code section 4740(a)) might make those new rental restrictions inapplicable to existing members.

Q10. If members approve amendments to conform with the law, which members are bound by the amended provisions?

A. It’s unclear. The answer to this question may depend upon whether language in the current document “prohibits” or “unreasonably restricts” rentals in violation of either Civil Code section 4740 or 4741. If an existing rental provision (e.g., a cap of 25% or less) is construed as either a prohibition or an unreasonable restriction, it would be unenforceable and an amendment would be necessary to conform to the new law. In that case, it is possible the amendment may only apply to new purchasers after adoption of the amendment. Hopefully, the Legislature will adopt clean-up legislation next year to address this issue. In the meantime, please contact your legal counsel for additional guidance.

AB 3182 (Rental Restrictions) Chaptered!

Today Governor Gavin Newsom signed into law Assembly Bill 3182 (“AB 3182”) which will become effective January 1, 2021.

Among other things, AB 3182 amends Civil Code section 4740 and adds a new section 4741 to the Civil Code. The new section 4741 provides that an owner of a separate interest in a common interest development (“CID”) will not be subject to a governing document provision that prohibits, has the effect of prohibiting, or unreasonably restricts the renting or leasing of a separate interest, accessory dwelling units (“ADU”), or junior accessory dwelling unit (“JADUs”) to a renter, tenant or lessee. section 4741 will allow CIDs to adopt or enforce governing document provisions which prohibit transient occupancy or short term rentals of separate interests for 30 days or less. However, section 4741 will prohibit CIDs from:

Adopting or enforcing a governing document provision that restricts the rental or lease of separate interests in the community to less than 25% of the separate interests regardless of when the provision was adopted (adopting or enforcing governing document provisions authorizing a higher percentage of separate interests to be rented or leased are allowed).
Treating ADUs and JADUs as separate interests.
Counting a residence as being occupied by a tenant, if the separate interest, ADU or JADU is also occupied by the owner.

Section 4741 will require CIDs to comply with the new law on and after January 1, 2021, regardless of what their governing documents provide. However, CIDs are required to amend their governing documents to conform to the requirements of this new law no later than December 31, 2021. This new law does not provide an exception to the membership approval requirements for any CC&R amendments necessary to comply with this new law. Section 4741 also states that a CID which “willfully violates” this law, including the governing document amendment requirements, shall be liable to the applicant or other party for actual damages and shall pay a civil penalty to the applicant or other party in an amount not to exceed $1,000.

In addition to the above, AB 3182 also requires local agencies to magisterially approve an application for a building permit within a residential or mixed use zone to create one ADU and one JADU per lot so long as certain building requirements are met. Moreover, AB 3182 provides that if a local agency has not acted upon a completed application for the creation of an ADU and/or a JADU within sixty (60) days, the application is deemed approved.

AB 3182 may cause sweeping changes to your community. Please consult with your community’s legal counsel for additional guidance regarding how AB 3182 may affect your community and what your community needs to do to comply.

Request To Inspect and/or Copy Association Records (Civ. Code § 5200, et seq.)

Homeowners associations are routinely faced with members and directors who request the right to inspect association records. There are penalties prescribed for an association’s wrongful failure to timely and fully comply with the request. While the Davis-Stirling Common Interest Development Act (“Act”) and the Corporations Code set forth specific requirements and procedures for responding to a request to inspect and copy association records, there are exceptions and limitations spelled out in the Code and in case law. If there is litigation or potential litigation associated with the request, the association is well advised to immediately seek counsel from its attorneys before acting on any such request.

The following is a summary of the applicable code sections and procedures. Documents Subject to Inspection

Absent different provisions in the governing documents, only “association records” may be inspected and copied. The Act defines “association records” (Civ. Code §5200) as follows:

Financial documents (a summary of the association’s reserves, the reserve study, insurance and loan information, notices of expiration of insurance policies (if any), documents required to be produced in response to a seller’s request pursuant to section 5235, including notices of hearings for uncured violations (if any), a copy of construction defect notices (if any), notices of pending assessment changes (if any), the annual budget report, and financial statement reviews (if any);
Interim financial statement containing a balance sheet, income and expense statement, a budget comparison and/or a general ledger;
Executed contracts that are not privileged;
Written board approval of vendor or contractor proposals or invoices;
State and federal tax returns;
Reserve account balances and records of payments made from reserve accounts;
Agendas and minutes of meetings of the members, the board and committees appointed by the board, excluding minutes and other information from executive sessions of the board;
Membership lists, including name, property address, mailing address, and email address (but not records and/or information for members who have opted out pursuant to

Code §5220). Note that a request for membership list requires a statement of the purpose for which the list is proposed to be used by the requester. (Civ. Code §5225.);

Association check registers;
The governing documents;
Reserve studies;
Enhanced association records. “Enhanced association records” means invoices, receipt and cancelled checks for payments made by the association, purchase orders approved by the association, bank account statements for bank accounts in which assessments are deposited or withdrawn, credit card statements for credit cards of the association, statements for services rendered and reimbursement requests submitted to the association; and
Association election materials. “Association election materials” means returned ballots, signed voter envelopes, the voter list (including name, voting power, and either the physical address of the voter’s separate interest, the parcel number or both. The mailing address for the ballot must also be listed if it differs from the physical address of the voter’s separate interest or if only the parcel number is used.), proxies, and the candidate registration list. Signed voter envelopes may be inspected by may not be copied. An association is required to maintain association election materials for one year after the date of the election.

Time Limits for Keeping Records

The association must maintain records for the current fiscal year, plus two previous years. However, minutes of member board meetings, and meetings of committees with decision-making authority (such as architectural committees) must be kept permanently. (Civ. Code §5210(a).)

Time Limits for Providing Records

The association must produce records prepared during the current fiscal year within 10 business days following receipt of a written request. (Civ. Code §5210(b)(1).)

The association must produce any records prepared during the previous two years within 30 calendar days of a written request. (Civ. Code §5210(b)(2).)

Minutes (or a summary or proposed draft minutes) of board meetings must be produced within 30 days of the meeting. (Civ. Code §4950.) Minutes of committees with decision-making authority (such as architectural committees) must be made available with 15 calendar days following approval of the minutes by the committee.

Membership lists must be produced within five days, unless the association elects to provide a reasonable alternative, such as agreeing to transmit the requester’s communication to the members directly. (Corp. Code §8330.)

Withholding or Redacting Records

The association may withhold or redact information from a document if information in a document is likely to lead to identity theft of an individual or to any fraud in connection with the association such as:

Documents that are privileged or confidential (subject to attorney-client privilege, litigation, or confidential settlement agreements);
A release that is likely to compromise the privacy of a member;
Information that contains disciplinary actions taken against other members;
Collection activities or payment plans of other members, or any personal identification Information (i.e., social security number, tax identification number, driver’s license number, credit card number, bank account number or bank routing number);
Minutes and other information from an executive session;
Personal records;
Interior architectural plans of individual homes or units, including security features (Civ. Code §5215(a)).

If information is withheld or redacted, the association must provide a written explanation of why the information is being withheld or redacted. (Civ. Code §5200.) The association may charge a fee for the cost of redacting enhanced association records, in any amount not in excess of $10 per hour, and not to exceed $200 total per written request.,. (Civ. Code §5205(g).)

Note that the association may not withhold or redact information concerning compensation paid to employees, vendors, or contractors (except as provided by the attorney-client privilege). However, information regarding compensation paid to employees shall be set forth by job classification or title, not by the employee’s name, social security number, or other personal information. (Civ. Code §5215(b).) Note that where an association contracts with an outside management company to provide management services, the manager and other related employees are the employees of the management company, not the association.

Member/Owner Rights to Inspect

A member or any member’s designated representative may inspect an association’s records. (Civ. Code § 5205(a).) Records and minutes may only be inspected for a purpose reasonably related to the member’s interest as a member. (Civ. Code § 5230(a)). A membership list may not be used to solicit money; for any purpose that the requesting member does not reasonably and in good faith believe will benefit the association; for a commercial purpose or for sale to any person. (Corp. Code §8338(a).)

A member also has a right to request the email addresses of other members who have not opted out. (Civil Code section 5200(a)(9))

Director Rights

A director has the “absolute” right, at any reasonable time, to inspect and copy all books, records, and documents of the association. (Corp. Code §8334.) This “absolute right” is subject to a director’s fiduciary duty to act in the best of interests of the association to restrain directors from exercising these rights for personal gain, or to further interests contrary to the interests of the association. (Corp. Code §7231(a).)

The courts have carved out exceptions to this “absolute” right. The individual privacy rights of members of the association trump the director’s right to inspect ballots cast in an election. “We hold that homeowners association members have a constitutional privacy right in their voting decisions, even when conducted by proxy ballot. A homeowners association director’s statutory right to inspect the records of the association must be balanced against this privacy right”. (Chantilles v. Lake Forest II Master Homeowners Association (1995) 37 Cal.App.4th 914, 926.)

A director who is a party to litigation with the association does not have the right to inspect records protected by the attorney-client privilege in order to “advance the director’s personal interest in obtaining damages against the corporation.” (Tritek Telecom, Inc. v. Superior Court (2009) 169 Cal.App.4th 1385, 1391.) “Although corporate directors have an ‘absolute right’ to ‘inspect and copy all [corporate] books, records and documents of every kind’ (Corp. Code §1602), including documents protected by the attorney-client privilege, we conclude that a corporate director does not have the right to access documents covered by the attorney-client privilege that were generated in defense of a suit for damages that the director filed against the corporation.” (Tritek, supra, at p. 1387.)

A director does not have the right to inspect records if that director’s stated purpose for inspecting those records is to breach his fiduciary duty (e.g., by disclosing attorney-client privileged documents). The absolute right, however, is subject to exceptions and may be denied where a disgruntled director announces his or her intention to violate his or her fiduciary duties to the corporation. (Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 39 Cal.App.4th 1844, 1852.)

Recently, the California Third District Court of Appeals, in Fowler v. Golden Pacific Bancorp, Inc. (2022) 80 Cal.App.5th 205, held that “the mere possibility that information could be used adversely to the corporation is not by itself sufficient to defeat a director’s inspection rights. Rather, any exception to the general rule favoring unfettered access must be limited to extreme cases, where enforcing an ‘absolute right of inspection would produce an absurd result, such as when the evidence establishes the director’s clear intent to use the information to breach fiduciary duties or otherwise commit a tort against the corporation.” (Fowler v. Golden Pacific Bancorp, Inc. (2022) 80 Cal.App.5th at p. 211.)

California has a strong public policy favoring a broad right of access to corporate records to assist directors in performing their duties in an intelligent and fully informed manner. The statutory scheme gives every director the absolute right to inspect and copy all books, records and documents of every kind, and imposes no “proper purpose” requirement. (Havlicek, supra, at 1851.) Because the denial of access to corporate records may operate to deny a director the ability meaningfully to participate in management, any exception to the policy of “absolute” access must be construed narrowly, limited to the most extreme cases where applying the literal meaning of the words would frustrate the manifest purpose of the law. (Fowler, supra, at 222.)

Documents May Be Inspected In Person, Copied, or Produced Electronically

In-Person Inspection: Inspection or copying of records may be done at the association’s business office within the association or at a place agreed to by the requesting member and the association. (Civ. Code §5205(c) and (d).)

Paper Copies: If a written request is made, the association may deliver copies to the member in lieu of an inspection. (Civ. Code §5205(e).)

Electronic Copies: The member requesting the inspection can request that he/she receive records by electronic transmission or machine-readable storage media so long as the records

can be transmitted in a redacted format that does not allow the records to be altered. The association can charge for this cost. (Civ. Code §5205(h).)

Note, however, that signed voter envelopes may be inspected, but not copied. (Civ. Code §5200(c).)

Costs Associated with a Request for Documents

Copying and Mailing: The association may bill the requesting member for the actual cost of copying and mailing. The association shall inform the member of the actual amount and this must be paid prior to copying and mailing. (Civ. Code §5205(f).)

Redacting: The association may bill the member requesting an enhanced record up to $10.00 per hour, not to exceed $200.00 per written request, for the time involved in redacting an enhanced record. The member making the request must agree to pay these costs before the redaction is done. (Civ. Code §5205(g).)

Remedy for Failure to Produce Records

If the association fails to comply with a valid request from a member to produce association records, the member has the right to sue the association to force compliance. That member may hire an attorney and sue the association in Superior Court to obtain a mandatory injunction ordering the association to produce the records. If the member prevails in this lawsuit and the court finds that the association unreasonably withheld the records, the court must award the member his/her reasonable costs and expenses, including attorney’s fees, and may assess a $500 penalty for each denial of a written request to inspect/copy records. (Civ. Code §5235(a).) If the association prevails, it is not entitled to recover its attorney’s fees and can only recover its costs of litigation if the court finds the member’s lawsuit to be frivolous, unreasonable or without foundation. (Civ. Code §5235(c); see also Retzloff v. Moulton Parkway Residents’ Association (2017) 14 Cal.App.5th 742.)

The member may also elect to bring suit in small claims court and the small claims court has jurisdiction to issue a mandatory injunction ordering the association to produce the records as well as award the statutory penalty ($500) for each denial of a written request, up to the jurisdictional limits of the court ($10,000). No attorney’s fees are awarded in a small claims case, but the court can award other reasonable costs such as filing fees and costs of serving the summons and complaint. (Civ. Code §5235(b).)