2009 Laws
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2009 CHANGES IN THE LAW

2009 STATUTES

1. Disclosure Document Index (AB 899). As of January 1, 2010, all Associations will be required to distribute, at the request of any member, a “Disclosure Documents Index” (New Civil Code §1363.005). The Index must be in the following form:

Disclosure Documents Index
Item
Description
Reference Code
1 Assessment & Reserve Funding Disclosure Summary (form)
Civ. Code §1365.2.5
2 Pro Forma Operating Budget or Pro Forma Operating Budget Summary
Civ. Code §1365(a)
3 Assessment Collection Policy
Civ. Code §1365(e) & 1367.1(a)
4
Notice/Assessments and Foreclosure (form)
Civ. Code §1365.1
5
Insurance Coverage Summary
Civ. Code §1365(f)
6
Board Minutes Access
Civ. Code §1363.05(e)
7
Alternative Dispute Resolution (ADR) Rights (summary)
Civ. Code §1369.590
8
Internal Dispute Resolution (IDR) Rights (summary)
Civ. Code §1363.850
9
Architectural Changes Notice
Civ. Code §1378(c)
10
Secondary Address Notification Request
Civ. Code §1367.1(k)
11
Monetary Penalties Schedule
Civ. Code §1363(g)
12
Reserve Funding Plan (summary)
Civ. Code §1365(b)
13
Review of Financial Statement
Civ. Code §1365(c)
14
Annual Update of Reserve
Civ. Code §1365(a)

2. Electronic Distribution of Documents (AB 899). Current law allows an association to electronically distribute certain documents to any member who has agreed to that method of delivery. Those documents are the Notice of Proposed Rule Changes, the Notice of Adopted Rule Changes and the Notice of The Results of An Election to Reverse A Rule Change (Civil Code §§1357.130 and 1357.140).

Beginning on January 1, 2010, all the documents listed in the “Disclosure Document Index” (as well as the rule change documents listed above) can now be delivered electronically to any member who gives their consent, provided that the consent complies with all the requirements of California Corporations Code §20.

Corporations Code §20 (amended as of January 1, 2010) includes the following requirements:

-The electronic transmission must be made to a recipient who has provided an unrevoked consent to the use of such transmission;

-The electronic transmission must create a record which is capable of retention, retrieval, and review;

-The electronic transmission must be able to be rendered into clearly legible tangible form;

-If the electronic transmission is made to a member who is a natural person, then the consent must also include a clear written statement relating to:

o  any right of the recipient to have the record made available on paper or in nonelectronic form,

o  whether the consent applies only to that transmission, to specified categories of communications, or to all communications from the corporation, and

o  procedures the recipient must use to withdraw consent.

3. Assessment and Reserve Funding Disclosure Summary Must Now Include Interest Rate and Inflation Rate Assumptions (AB 899 - Civ. Code §1365.2.5). The following statement must be included and properly completed in the Assessment and Reserve Funding Disclosure Summary:

Note: The financial representations set forth in this summary are based on the best estimates of the preparer at that time. The estimates are subject to change. At the time this summary was prepared, the assumed long-term before-tax interest rate earned on reserve funds was ____ percent per year, and the assumed long-term inflation rate to be applied to major component repair and replacement costs was ____ percent per year.

4. Any Governing Document Provision Which Restricts Compliance With Water Conservation Laws Or Which Prohibits the Use of Low Water Plants Is Void (AB 1061). The Davis-Stirling Act currently provides that any architectural guideline provision is unenforceable if it prohibits the use of low water-using plants (Civ. Code §1353.8). As of January 1, 2009, any governing document provision is unenforceable if it prohibits the use of low water-using plants or if it restricts compliance with any water conservation law.

5. All Associations with Swimming Pools Must Have Anti-Entrapment Devices Installed By July 1, 2010 or Certify Prior Compliance With Virginia Graeme Baker Act By September 30, 2010 (AB 1020). Any association swimming pool which was constructed prior to January 1, 2010, must be properly retrofitted with anti-entrapment devices no later than July 1, 2010.

However, no further retrofitting is required for any association swimming pool that completed such a retrofit between December 19, 2007 and January 1, 2010, if the retrofit complied with the Virginia Graeme Baker Pool and Spa Safety, and if the association files a proper statement of compliance with California’s Department of Public Health prior to September 30, 2010.

6. Plumbing Fixtures In Multifamily Residential and Commercial Real Property Must Be Replaced With Water Conserving Plumbing Fixtures By Either 2014 or 2019; Disclosure Requirements for Sellers In 2017  (SB 407). By January 1, 2014, water-conserving plumbing fixtures must replace other noncompliant plumbing fixtures as a condition for issuance of a certificate of final completion and occupancy or final permit approval by the local building department. This requirement will apply to any owner who seeks to make any alteration or improvement to his or her property, if the alteration requires a building permit.

By January 1, 2017, a transferor of single-family residential real property, multifamily residential real property, or commercial real property must disclose to a transferee, in writing, the requirements for replacing plumbing fixtures, and whether the real property includes noncompliant plumbing.

By January 1, 2019, all noncompliant plumbing fixtures in multifamily residential real property and commercial real property must be replaced with water-conserving plumbing fixtures.

7. Any Person Who Renders Emergency Assistance Is Not Liable For Civil Damages If That Person Is Not Grossly Negligent, or Does Not Engage in Willful or Wanton Misconduct  (AB 83). A recent case held that a good Samaritan who gave emergency assistance to an injured person at the scene of an accident was liable for making the injuries worse.

This new law provides that medical, law enforcement, and emergency personnel who in good faith, and not for compensation, render emergency medical or nonmedical care at the scene of an emergency are not liable for any civil damages resulting from any act or omission.

This law also provides that any other person (not including medical, law enforcement, and emergency personnel) who in good faith, and not for compensation, renders emergency medical or nonmedical care or assistance at the scene of an emergency shall not be liable for any civil damages resulting from any act or omission, as long as that act or omission does not constitute gross negligence or willful or wanton misconduct.

8. Disaster Service Workers Are Immune From Civil Liability During War, a State of Emergency or a Local Emergency (SB 39). Disaster service workers shall not be liable when acting within the scope of their responsibilities under the authority of the governmental emergency organization, during a state of war emergency, a state of emergency, or a local emergency.

9. Small Claims Court Can Issue Injunctive and Other Equitable Relief Only Where A Statute Specifically Authorizes Such Relief (AB 712). This new law makes it clear that where a statute authorizes the small claims court to award injunctive relief, the court can issue such a judgment.

For example, section 1365.2 of the Civil Code authorizes a person to bring an action in small claims court to inspect and copy homeowner association-related records.  An action to enforce the right to inspect and copy records would be an action for injunctive or declaratory relief.  Similarly, subdivision (c) of Section 1363.09 of the Civil Code allows injunctive relief actions regarding association-related elections to be brought in small claims court if the amount of the demand does not exceed the jurisdiction of that court.

10. Calderon Process for Construction Defect Lawsuits Extended from July 1, 2010 to July 1, 2017 (AB 927). The process for attempting to informally resolve construction defect claims between builders and associations is referred to as the “Calderon Process”, and is set forth in Civil Code section 1375. That procedure was set to expire in 2010, but now will continue through July 1, 2017. 

11. An Association Who Is Damaged By An Unlicensed Contractor Can Obtain Restitution as A Crime Victim  (AB 370). This new law provides that a person who utilized the services of the unlicensed contractor is a victim of crime and is eligible, pursuant to the requirements of Penal Code 1202.4(f), to recover restitution from the contractor in the criminal proceeding for economic losses, regardless of whether that person had knowledge that the contractor was unlicensed.

12. Corporations Code Changes. The articles or bylaws may now require the presence of one or more specified directors in order to constitute a quorum of the board to transact business, with specified exceptions. Corp. Code §7211(a)(7).

A committee exercising the authority of the board shall not include as members persons who are not directors. However, the board may create other committees that do not exercise the authority of the board and these other committees may include persons who are not directors. Corp. Code §7212(b).

The business judgment rule is changed to restrict the ability of directors to rely upon information, opinions and reports of committees. Under the new law, directors can only rely on information, opinions and reports of committees if:

-the director does not serve on the committee,

-the committee is composed exclusively of

other directors,

officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented,

counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence; and

-the director believes the committee merits confidence, so long as, in any case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted. Corp. Code §7231.

Each director present and voting at a meeting shall have one vote on each matter presented to the board of directors for action at that meeting. No director may vote at any meeting by proxy. Corp. Code §7211(c).

A corporation shall have a chair of its board, who may be given the title chair of the board, chairperson of the board, chairman of the board, or chairwoman of the board, or a president or both, a secretary, a treasurer or a chief financial officer and any other officers with any titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments. Unless otherwise specified in the articles or the bylaws, if there is no chief financial officer, the treasurer is the chief financial officer of the corporation. Corp. Code 7213(a).

If a director is removed from office, his/her term does not continue past the election of his/her successor. Corp. Code §7220(b).

13. An Association Which Obtains A Judgment Lien On Personal Property of a Member Can Have The Lien Extended For An Additional Five Years (AB 121). A judgment lien on personal property is currently effective for five years if the lien is filed with the Secretary of State. This new law allows the lien to be extended for an additional five year period if a continuation statement is similarly filed.

14. Associations Cannot Levy Assessments Based Upon the Taxable Value of the Separate Interests (AB 313 - Civ. Code §1366.4). This new law prohibits an association from levying assessments on separate interests based on the taxable value of the separate interests unless the association, on or before December 31, 2009, in accordance with its declaration, levied assessments on those separate interests based on their taxable value.

15. Low Income Families Are Exempt from Licensing Requirements of California’s Community Care Facilities Act (AB 123). This new law will make it easier for low income disabled or elderly persons to run community care facilities in residences within homeowners associations.

It would do this by exempting from licensing requirements any housing which is occupied by elderly or disabled persons under a federal regulatory agreement, any housing that qualifies for a low-income housing credit under the federal Tax Reform Act of 1986, or any elderly or disabled housing which is subject the low-income family dwelling requirements in the federal Housing and Community Development Act of 1974.

16. Electronic Distribution of Disclosures. Civil Code §1350.7 was amended to allow associations to distribute annual disclosure packages and other financial disclosures to owners by e-mail with the owner's written consent. Effective January 1, 2010.

17. Cooperatives Redefined. Civil Code §1351(m) revised the definition of a stock cooperative.

2009 CASE LAW

1. Business Judgment Rule
In Berg & Berg Enterprises, LLC v. Boyle (October 2009), the court clarified California’s so called “Business Judgment Rule” by explaining that it really is two separate Rules.

The first (statutory) Rule immunizes individual directors from personal liability if they act in good faith, in a manner the director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. (Corp. Code §7231).

The second (common law) Rule insulates from court intervention those board decisions regarding the maintenance, control and management of a condominium development's common areas, if the board reasonably exercised its discretion in good faith. (See Lamden v La Jolla Shores).

See also Civil Code section 1365.7, which provides limited tort immunity to certain volunteer directors and officers of exclusively residential associations for personal injury and property damage claims resulting from their tortuous acts, if the act was performed within the scope of their duties, was in good faith, was not willful, wanton, or grossly negligent, and if the association maintained specified insurance.

2. Discrimination Under the ADA and Unruh Act
In Carolyn v Orange Park Community Assn. (September 2009), the court explained that the discrimination protections in the Unruh Civil Rights Act and the Americans With Disability Act only applies to recreational areas within an association which are places of “public accommodation”.

Purely residential areas of a common interest development are not public accommodations and thus are not subject to the ADA or Unruh Act. On the other hand, commercial or recreational areas within a residential homeowners association which are “open to the public” do qualify as public accommodations and are subject to the ADA and Unruh Act.

The Orange Park court held that a homeowners association’s privately owned horse trails were not turned into a public accommodation (thereby becoming subject to the ADA and Unruh Act) merely because the association failed to “actively deny” members of the public access to the private trails.

As the Orange Park opinion explained, an Association does not have to comply with the ADA and Unruh Act where its privately owned horse trails were built only for use by members, the Association did not encourage public use of its trails through advertising or otherwise, the Association did not charge fees to the public for using the trails, and it did not benefit in any other way from the public's use of the trails.

Consequently, the Association’s horse trails were merely an amenity which it provided to members in exchange for payment of their association dues, and were not places of public accommodation under the Unruh Act and ADA.

3. CC&R Amendments

In Costa Serena Owners Coalition v. Costa Serena Architectural Committee (June 2009), a CC&R amendment was adopted in violation of the procedures set forth in the declaration.

The Costa Serena court held that the improperly adopted amendments were not automatically void ab initio (from its inception). Instead, the amendments were merely voidable if they were timely and successfully challenged in court. In Costa Serena, the procedurally defective amendments were allowed to remain in effect, since the lawsuit seeking to set them aside was not timely filed within four years of recordation.

4. Enforcement of Governing Documents/Davis-Stirling Act By Non-Owner Residents

In Martin v Bridgeport Community Association, non-owner residents sued the Association for breach of the governing documents and for violations of the Davis-Stirling Act.

The Bridgeport court held that the residents did not have standing to sue the Association, reasoning that all their claims “are incidents of … ownership of the Property, and the [residents] have no ownership in the Property.”

Furthermore, as the court noted, there is “no provision in the Davis-Stirling Act that authorizes an owner or a member to assign any right or obligation [under the Act] to any third party”.

5. Home Business Governing Document Violation

In Nelson v Avondale HOA (February 2009), Mr. Nelson, a “world renowned Homeopathic Nutritionist and religious counselor” suffered an illness which prevented him from leaving home or driving. As a result, he relocated his religious and medical counseling practice to his residence, where he would see up to eight patients per day for one-half hour sessions, five days per week.

The Association brought a lawsuit against Nelson, claiming that his home business violated the governing documents. The Avondale court agreed with the Association, holding that Nelson’s home business violated two Association rules.

The first Association rule stated: “Pedestrian and vehicular traffic will be limited to that normally associated with residential districts”. The Avondale court held that Nelson violated this rule since up to eight visitors per day came to Nelson’s home, five days a week.

The second Association rule provided: “The conduct of a home occupation requires both the approval of the City of Palm Desert and the approval of the Association”. The Avondale court found that this rule was violated because Nelson did not seek permission from either the City or the Association for his home business until after receiving the Association’s notice of violation.

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