The 2021 legislative session was one of the most active legislative years impacting California community association law. Pressures of the California affordable housing crisis continue to seep into several laws to increase housing density availability and rental properties.
All in all, California’s community associations fared well with several pieces of legislation clarifying omissions and ambiguities in prior laws. New laws will also facilitate more efficient community association governance for board members conducting meetings and elections. The following legislative summary provides an overview of new laws that significantly impact community associations. Unless otherwise noted, all new laws take effect on January 1, 2022.
This is Part 1 of two parts covering the eight bills passed that affect Community Associations. Part 2 will be released next week. Contact your management company and association legal counsel if you have questions on these matters.
Assembly Bill 502 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.
AB 502 amends Section 5100 of the Civil Code and adds Section 5103 to provide long-anticipated relief for smaller community associations from the costly secret written ballot process for director elections with more open seats than candidates. Starting in 2022, all associations will have the option of utilizing the acclamation procedures in Civil Code §§ 5100 and 5103 when “the number of qualified candidates is not more than the number of vacancies to be elected.” However, this process is subject to specific notice and related procedural requirements, including:
1. First, associations are still required to hold a “regular election” at least once every three years, meaning one that follows the usual secret ballot process.
2. Second, associations are required to provide additional individual notices to each of the members about the potential use of the acclamation procedure, including:
- An initial notice at least 90 days before the deadline for submitting nominations; and
- A reminder notice between 7 and 30 days before the deadline for submitting nominations.
3. The association must also send a written or electronic communication notice within seven business days of receipt of any nomination confirming receipt to the member who submitted the nomination. The association must also notify the nominee whether he or she is a qualified candidate and, if not, the basis for disqualification and procedure for appeal.
Thereafter, a special meeting with board members is held where the agenda must reflect the name of each qualified candidate proposed to be seated by acclamation. At that time, the Board votes whether to approve the election of the slate of candidates by acclamation.
The AB 502 acclamation procedure applies notwithstanding any contrary provision in the governing documents, meaning that the provisions of AB 502 take precedence over associations whose governing documents mandate board elections solely by secret written ballot.
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. It 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 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 new Civil Code Section 5103 term limits as a permissible basis for disqualifying a candidate.
Assembly Bill 1101 Association Funds; Insurance
AB 1101 is an association financial wellness bill sponsored by Assembly Member Jacqui Irwin that improves upon or “cleans up” Ms. Irwin’s Assembly Bill 2912 from 2018. The bill covers financial transfers, fidelity coverage, and management of association bank accounts.
AB 1101 amends Civil Code 5380 to require the managing agent to 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 puts an end to management’s ability to commingle funds, as the bill prohibits commingling association funds with a managing agent’s funds or with funds of other associations.
The key clarification provided by AB 1101 concerns fund transfers requiring board approval. The bill Amends Civil Code 5308 and 5502 requiring prior written approval for transfers as follows:
- For communities of 50 or less separate interest: the lesser of $5000 or 5% of the operating budget.
- For communities of more than 50 separate interests: the lesser of $10,000 or 5% of the operating budget.
Finally, AB 1101 amends Civil Code Section 5806 regarding fidelity bond requirements. An association must maintain crime insurance, employee dishonesty coverage (in addition to fidelity bond 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.
Assembly Bill 1584 Housing Omnibus
AB 1584 addresses amendments to the governing documents required by Civil Code Section 4741 regarding the rental of a separate interest. In January 2021, Civil Code Section 4741 was added to the Davis Stirling Common Interest Development Act, voiding governing document provisions prohibiting or unreasonably restricting the rental or leasing of a separate interest or an accessory dwelling unit. Current Civil Code Section 4741 mandates that an association amend its governing document to conform to that code section on or before January 1, 2022.
AB 1584 recognizes the challenges of obtaining membership votes to amend governing documents at all, let alone by December 31, 2021. To ease this burden of complying, AB 1584 amends Civil Code Section 4741 to allow a board to amend the governing document containing the impermissible rental restriction without a membership vote and extends the deadline for doing so to July 1, 2022.
The 28-day member notification and comment period for adopting operating rules in Civil Code Section 4045 apply to this Governing Document amendment process. After considering members ‘ comments, any governing document amendment pursuant to this section shall be made at an open board meeting.
Senate Bill 9 Housing Development
SB 9 is another piece of legislation addressing the State’s affordable housing shortage.
SB 9 allows a single-family Lot owner to split their Lot into two and construct up to two residences units on each of those Lots. Naturally, SB 9 would also allow a Lot owner to add a second residence on their existing Lot.
The ability to significantly increase housing density in planned development communities would undoubtedly negatively impact community association design, infrastructure, common areas, and recreational facilities – not to mention the operating budgets and reserve funds. We understand that the author of this legislation, Senator Toni Atkins, has indicated in writing that the law does not contain provisions that supersede associations’ Governing Documents, which means a planned development’s CC&Rs that prohibit lot splitting or further subdivision of a Lot would take precedence over SB 9.
What remains to be seen is whether SB 9 would allow an Owner to Lot split and build multiple residences if the association’s Governing Documents were silent on further subdivision or Lot splitting. As written, SB 9 would allow for Lot splitting in such a circumstance.
Thanks to the Law Offices of Richardson Ober DeNichilo for providing the summary of this legislation.