As reported in our October 13 newsletter, Governor Newsom signed Assembly Bill 670 authorizing accessory dwelling units. The Governor's goal is to create a large stock of low-income rentals throughout California as quickly as possible.
The companion legislation is extensive and will create significant challenges for planned developments when it goes into effect January 1, 2020. Following is a summary of key points.
Defined. An “Accessory Dwelling Unit” (ADU) means an attached or a detached residential dwelling unit that provides complete independent living facilities for one or more persons and is located on a lot with a proposed or existing primary residence. It includes permanent provisions for living, sleeping, eating, cooking, and sanitation on the same parcel as the single-family or multifamily dwelling is situated.
A “Junior Accessory Dwelling Unit” (JADU) means a unit that is no more than 500 square feet in size and contained entirely within a single-family residence. A JADU can include separate sanitation facilities, or may share sanitation facilities with the existing structure.
Garage Conversions. The legislation authorizes garage and carport conversions into ADUs or JADUs (depending on size) that can be rented. This will impact parking in planned developments.
Parking. Most associations already have parking problems. ADUs will exacerbate the problem. Associations that require cars be parked in garages cannot use the requirement to stop garage conversions. The bill voids any restrictions that would prevent the construction of ADUs.
Rules Enforcement. Associations can continue to enforce garage parking requirements, but only against those who do not convert them into ADUs. This will create rules enforcement problems for associations. Owners will not take kindly that some must follow parking rules while others are exempt.
Two Per Lot. The bill allows one accessory dwelling unit and one junior accessory dwelling unit per lot. That means owners can convert their garage into a JADU and build an ADU in their backyard.
Expedited Approvals. The bill expedites the approval process. Local agencies will be required to process applications within 60 days of their submission. Some applications can receive ministerial approval. That means they can be approved without a hearing notwithstanding any local ordinance regulating the issuance of variances or special use permits.
Fees Limited. In addition to streamlining applications, permit fees will be limited. Agencies cannot treat ADUs as a new residential use for purposes of calculating connection fees or capacity charges for utilities, including water and sewer service, nor can they require the applicant to install a new or separate utility connection directly between the accessory dwelling unit and the utility or impose a related connection fee or capacity charge.
Increased Parking. When a garage, carport, or covered parking structure is demolished in conjunction with the construction of an accessory dwelling unit or converted to an accessory dwelling unit, local agencies cannot require that those off-street parking spaces be replaced. In other words, parking is pushed to the streets. In addition, if owners want to create parking additional on their lots, the bill allows for parking in setback areas. That means more vehicles can be parked on a lot and parked closer to neighboring houses.
Setback Requirements. Association setback requirements that would prevent the construction of backyard ADUs will be voided. Setbacks will be reduced to "no more than four feet from the side and rear lot lines."
View Restrictions. The bill does not address view restrictions. Can an association block the construction of ADUs that violate view restrictions? The bill's broad language striking down any restrictions that prevent the construction of ADUs arguably includes view restrictions. Litigation will likely erupt over this issue.
Owner Occupancy. The bill allows local agencies to impose a requirement that an owner occupy either the primary dwelling or the ADU. Accordingly, associations should be able to adopt the restriction as well.
Rental Period. The bill allows local agencies to impose a restriction that ADUs be rented for terms longer than 30 days. That means associations should include ADU rental restrictions in their rules even if no such restriction is found in their CC&Rs.
Property Values. Higher density created by ADUs means additional vehicles on streets. In addition to parking problems and rules enforcement issues, the influx of ADU renters will burden amenities such as pools, clubhouses, tennis courts, etc. This could change neighborhood aesthetics and could drive down property values.
RECOMMENDATION: Association boards should talk to legal counsel about adopting policies and procedures for ADUs and JADUs. Contact us for assistance.
Following are questions we started receiving about ADUs:
ADU #1. Does the ADU bill apply to Indian owned land? -Al H.
RESPONSE: It depends on where it's located. As U.S. citizens, American Indians are generally subject to federal, state, and local laws. On federal Indian reservations, however, only federal and tribal laws apply to members of the tribe, unless Congress provides otherwise. Accordingly, if a common interest development is built on Indian owned land outside of a reservation, the ADU bill would apply. If the development is inside the reservation, it would not apply.
ADU #2. What are the steps in preparing guidelines to revise our architectural guidelines to regulate ADUs in our HOA? -John R.
RESPONSE: The bill allows associations to adopt restrictions so long as they do not unreasonably increase the cost of ADUs. Your board will need to work with legal counsel to prepare ADU rules and then go through the normal procedure for adopting rules.
ADU #3. I'm not clear from your last newsletter if this law (allowing ADU structures in back yards & converting garages to ADUs) applies to condominium complexes, too, or just single family homes & townhomes. -R.R.
RESPONSE: Condominiums are not affected. The statute specifically references planned developments. Townhouse construction where owners own their structure and the lot it sits on, will be affected if they have garages.
ADU #4. I’d appreciate your latest info regarding ADU guidelines as mentioned in your newsletter. We just revised our ARC documents allowing for HOA exemption from this disastrous change. Ouch!! -Arthur S.
RESPONSE: Law firms are studying the legislation so they can assist their clients in how best to implement the law. Our firm is preparing ADU guidelines. You can contact us for more information.
More Problems Identified. Further analysis of SB 323 has revealed additional problems. Hopefully, this is the last of the difficulties.
A. Deadline for Adoption of Election Rules. The original election law in 2005 provided time for associations to adopt election rules--it gave them until July 1 of the following year. CCHAL did not provide any such buffer.
Their law goes into effect January 1, 2020. That has law firms and boards across the state scrambling and will put many associations in violation because there is not enough time to get amendments in place for elections in January, February, March and April.
Bylaws. Associations with an election in the first quarter of 2020 cannot possibly amend their bylaws in time to incorporate the burdensome requirements imposed by CCHAL. That means associations will need to amend their election rules without any corresponding changes in their bylaws, thereby creating a conflict between their bylaws and their election rules.
Election Rules. With the 90-day restriction on election amendments, associations with elections in the first quarter of 2020 must either (i) amend their election rules in violation of the 90-day restriction or (ii) hold their elections under existing rules in violation of CCHAL's election requirements. Either approach creates the potential for legal challenge by disaffected homeowners.
Election Timeline. CCHAL's extended election timeline is difficult to parse. As a result, there are at least three different versions of the timeline being circulated. No one knows for sure which one is fully compliant with the new requirements. It would be nice if Marjorie Murray and Senator Wieckowski published a definitive timeline so associations could avoid getting sued.
B. 90-Day Amendment Restriction. Election rules adopted cannot be amended less than 90 days prior to an election. (Civ. Code §5105(h).) Unfortunately, the bill did not define the starting point of an election. Is it the appointment of an inspector of elections, the call for nominations, the counting of ballots, or something else? It creates another opportunity for legal challenges if a disgruntled homeowner disagrees with the board's selection of a starting point for the 90-day amendment restriction.
C. Hierarchy of Documents. SB 323 turned the hierarchy of documents on its head. Civil Code §4205 establishes a hierarchy of authority so boards of directors and courts can determine which documents control whenever there is a conflict between them. The hierarchy is as follows:
3. Articles of Incorporation
CCHAL's legislation creates new election requirements that must be incorporated into election rules in all of California's 55,000 residential and mixed-use associations. Those requirements prevail notwithstanding anything to the contrary in their CC&Rs or bylaws. That means election rules are now in the #2 position whenever there is a conflict between amended election rules and any other governing document.
D. Term Limits. CCHAL may have intentionally or unintentionally voided term limits. If associations cannot establish any nomination qualifications except those allowed by Marjorie Murray's organization, that means term limits are voided since they prevent members from being nominated.
E. Recall Elections. The conflict between CCHAL's extended election timeline and the Corporation's Code we identified in last week's newsletter may require changes in how recall elections are handled. Since elections will now last approximately 105 days, the 90-day timeline for recall elections required by the Corporations Code are in conflict.
This can be dealt with by holding two elections--a 90-day recall election followed by a separate 105-day election (assuming the recall is successful). That means recalled directors remain in place until the association goes through a CCHAL election. The second approach is to decide that election rules override the Corporations Code and hold the recall and director election simultaneously using the new 105-day timeline. It's one more detail for law firms to sort out when amending election rules and bylaws.
F. Costs Levied by a Third Party. Another example of poor drafting is a new provision by CCHAL that candidates cannot be disqualified for nonpayment of costs levied by a third party. There is a great deal of speculation as to its meaning since third parties don't levy costs via associations. They levy their costs independently. If anyone happens to attend one of Marjorie Murray's classes on how to sue associations, they can ask her what it means and then let us know.
As with our last two newsletters, there were too many emails to print. Many were edited to make them shorter. Following is a sampling:
Nightmare Bill #1. Someone should investigate why Marjorie Murray never registered as a lobbyist. You can get the Center for California Homeowner Association Law's IRS form 999 showing a "loan" to her, putting Marjorie Murray in violation of applicable lobbying laws. -Anonymous
RESPONSE: If Marjorie Murray is not registered, she must be operating under a loophole.
Nightmare Bill #2. Here is an email address I have for Marjorie Murray: [email protected]. Hope this helps! -S.S.
Nightmare Bill #3. Regarding CCHAL, how is it funded? Regarding Senator Wieckowski, where is he from and how does he benefit by creating unnecessary laws? -Jim K.
RESPONSE: I've been told that CCHAL is funded by plaintiffs' lawyers (hence the classes on how to sue associations). Unfortunately, I have not been able to verify their source of funding. As for Sen. Wieckowski, his website states he is a Democrat from Fremont representing a portion of San Francisco's East Bay. His alignment with CCHAL is a mystery. His bill harms over 9 million Californians. I don't see how that helps him politically.
Nightmare Bill #4. What about electronic voting? Is it not allowed in California? -Brad S.
RESPONSE: Corporations throughout California can use electronic voting--except if the corporation is a homeowners association. Marjorie Murray's organization helped kill legislation that would have allowed electronic voting.
Nightmare Bill #5. What is a voluntary non-CID association? -Jairo A.
RESPONSE: Before developers fully understood how to create homeowner associations, they created deed restricted developments. Typically, the restrictions protected views and the architectural integrity of the development. They didn't create an association to enforce the restrictions because they didn't know how. As a result, enforcement was left to individual owners. It had the effect of pitting one homeowner against another. As a result, homeowners would get together and form a voluntary association with voluntary dues. Because everything is voluntary, dues are quite small and voluntary associations have difficulty enforcing restrictions because legal expenses often outstrip their budgets.
Nightmare Bill #6. Do you represent homeowners against their associations? -Glori
RESPONSE: No, to avoid potential conflicts of interest, we do not represent individual board members, homeowners, management companies, or vendors. We only serve as corporate counsel to associations. There are a number of fine lawyers in practice who represent homeowners against their associations.
Nightmare Bill #7. Can SB 323 be repealed? -Susan E.
RESPONSE: That's unlikely. Homeowners throughout California fought the bill by writing letters, making phone calls, and visiting their legislators. Unfortunately, Marjorie Murray's organization and Senator Wieckowski were able to push through the legislation.
Nightmare Bill #8. We are a small HOA. Our annual meeting will be 1/15/20. Are we supposed to completely redo our process and not have our annual meeting until sometime in April (based on the new timeline?) -Myrna W.
RESPONSE: Existing election laws are valid through January 1, 2020. Currently, you can operate under them and send out notices and ballots. To be safe, you should appoint an independent election inspector to act as an inspector and hold your election January 15 (and hope no one sues over real or imagined violations under CCHAL's new timeline). Your other option is to push your election into the second quarter of next year while you amend your documents and adopt the new election timeline.
Nightmare Bill #9. We are a small (31-unit) self-managed condo association. Our total income proposed for 2020 is $66,960. Hard to imagine how the expenses required by this bill will impact our association. Am I right in assuming that this total pain bill applies to us also? -Mary C.
RESPONSE: Sadly, yes. Marjorie Murray's organization did not make any exceptions for small associations. Their burdensome requirements apply to a 5-unit association the same as a 5,000-unit association.
Nightmare Bill #10. We are an association of cabin owners formed in 1981, each with a 1/26th share of 8+ acres. We have bylaws but not CC&Rs. We have been told that we are not a CID but TIC and therefore do not need to follow Davis-Stirling or any of the rules related to such (no open meetings, annual mailings, reserves, budgets or election rules). As secretary, I am skeptical. Is this advice correct? -Lesley M.
RESPONSE: From your description, it sounds like you are a CID. Unlike stock cooperatives where a corporation owns the entire project and shareholders are given an exclusive right to lease a unit, a TIC (also known as a "community apartment project" or "own-your-owns") is a development where members own the entire project as tenants in common (TIC) and are given the exclusive right to lease a unit (in your case, a cabin). This form of legal structure is one of the four recognized under the Davis-Stirling Act as a common interest development subject to the Act. (Civ. Code §4105) You should have legal counsel review your governing documents.
Nightmare Bill #11. I see nothing in the CC&Rs that prohibits a member obtaining a new ballot and changing his vote, prior to the votes being counted for a board election. Since we can nominate someone from the floor the day of the election, or if we learn something new about a candidate, how is this possible? Our management company says it is not allowed. Could you please site any code that addresses this? -Mary B.
RESPONSE: Your management company is correct. Once a secret ballot is received by the inspector of elections, it is irrevocable per Civil Code §5120(a).
Nightmare Bill #12. I no longer live in California having had the good sense to move four years ago. I sincerely pray Idaho will be a place where there is more common sense in government. -Sandy B.
RESPONSE: At the moment, common sense is in short supply in California. Let's hope the malady does not spread to surrounding states.
Nightmare Bill #13. This new law (SB 323) is insane. I’ve just been made aware that it is in direct conflict with the California Data Protection Act, which goes into effect on January 1. From what I’m being told, one act says you have to protect the integrity of information under your control, and the other says you have to give it to any member who requests it. Any idea how to comply with both laws? -Shannon M.
RESPONSE: SB 323 is one of the worst bills in memory. It's excessive in its reach and poorly drafted. I will have to look into the Data Protection Act to see how the two interact.
Nightmare Bill #14. If Governor Brown vetoed this awful legislation last year, why did Newsom sign it this year? What’s his beef (or ineptitude) with HOAs? -Ken M.
RESPONSE: Good question.
Nightmare Bill #15. My board of directors is confused as to all the ramifications of this legislation and would like to get a general understanding of what they are facing prior to paying for legal advice. -Mike S.
RESPONSE: Right now, lawyers are working overtime trying to untangle the bill and draft new election rules. Your board shouldn't try to understand what you're facing--it would make your head hurt. Instead, authorize legal counsel to prepare new election rules and increase your annual budget for legal fees.
Nightmare Bill #16. Can small associations still conduct verbal elections during our annual meetings? We consist of only 8 units. -Patrice L.
RESPONSE: No, they can't. However, I suspect many small associations will ignore SB 323 and operate informally as your association does.
Nightmare Bill #17. What exactly can management companies legally do to facilitate an election? -Debra D.
RESPONSE: Under the direction of an independent election inspector, management can send ballots, collect ballots, count ballots, open ballots, and tally votes.
Nightmare Bill #18. Can a member of our management company, who serves a different association, miles away, and has NOTHING to do with our association be an inspector for our election? -Frank M.
RESPONSE: No, that won't work. The person is an employee of the management company under contract to your association. You will need to appoint a homeowner to act as your inspector or hire someone to handle the election. That person can then use your management company to assist with the election.
Election Rules. All associations must adopt new election rules. Any election conducted without new rules will be subject to legal challenge and may result in monetary penalties and an award of attorney fees.
CONTACT US if you would like us to prepare new election rules for your association.
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