January 1, 2014, is coming.
The Reorganized Davis Stirling Act is Coming.
It's Time to Decide When You Want to Jump In.
By Beth A. Grimm, HOA Attorney
Whether it works better for you to start now, or wait until after January 1, 2014, it is time to begin to understand how you want to handle the transition into the new, improved, reorganized, restated 2014 Davis Stirling Common Interest Development Act.
There are many homeowner associations in California that are trying to function with severely outdated documents, suspended status as corporations, and little to no understanding about the Davis Stirling Act. If you are one of those, you need help now. Maybe all of the hubbub about the new and improved Davis Stirling Act will help cure some of those ills. But in any case, there is no reason to panic. Like the coming of the new millennium on January 1, 2000, some people are freaked out. Others don't even know about it, and most that do are simply concerned. Concern is healthy. It makes people pay attention. It will take some patience and time to bring everyone up to speed. But you can start the transition now, and in a meaningful way, and charting a course of action and the timing for it should be on your board meeting agenda soon.
The best way to help managers, boards, and owners is to provide answers to questions floating around. So here goes:
What will happen to our association on January 1, 2014 if we are not ready? Will our documents expire when the current Davis Stirling Act at Civil Code Sections 1350-1378 expires? Will our status as a CID terminate?
Nothing drastic will happen. No document will expire unless by its own terms it says so. The new Civil Code Section 4010 says "Nothing in the act that added this part shall be construed to invalidate a document prepared or action taken before January 1, 2014, if the document or action was proper under the law governing common interest developments at the time that the document was prepared or the action was taken." This means that if your documents are legal and enforceable now, they will also be after January 1, 2014. If they conflict with the law now, they will remain in conflict as the year rolls over. The law itself will not change drastically enough to make your heart speed up in anticipation of the end of the year. Neither existing documents nor your association will die or become irrelevant. While there are benefits to start thinking "transition", there is no legal requirement to do so. The purpose of this article is to suggest simple ways to incorporate the new Act into existing documents so the transition will be a breeze and your December holidays will not be disrupted.
Will our current CC&Rs and Bylaws need to be updated and restated because of the new Davis Stirling Act?
Not necessarily. If they are outdated today in 2013, they will be just as outdated on January 1, 2014, and will probably seem even moreso. But documents that are not outdated now in 2013 will not immediately become outdated just because the Act is moved to another section of the Civil Code and there are a few new twists. But there are things that can be done to transition, even with regard to older as well as current documents. The new Civil Code Section 4235 allows boards to make changes to update documents by changing statute numbers from the 2013 code to the 2014 code. It says, "... the board may amend the governing documents, solely to correct the cross-reference, by adopting a board resolution that shows the correction."... [and] ... "Member approval is not required in order to adopt a resolution pursuant to this section." [Author's emphasis.] So a board could restate its CC&Rs (or recorded Declaration) with the new code sections and record them along with the Resolution. Note the word "solely" though. It's important. Association boards should not go rewriting any text in the documents.
Some people are telling us that we (the board) should just wait and restate our documents after 1/1/2014 since the new law allows us to, without an attorney or membership approval. Can't we just have our manager or a committee rewrite our documents under this new authority?
"Some people" are misleading association boards. A board may not rewrite its documents without membership approval. Free rein can lead a runaway board down a precarious path. This is where the word "solely" becomes important, and I cannot stress it enough. No board should go crazy and start revising the association documents. It is important to stop, think, and get good professional advice before doing anything to modify documents. The law allows only for replacing statute numbers, not rewriting paragraphs. Consider this - is it really beneficial to carve up documents to insert 3 to 4 times the number of numbers in the documents? That is what it would take to reflect the new Act in a set of old documents. There is a better way.
So what do we do about CC&Rs and Bylaws that point to the existing (but on January 1 to become) "old" law?
Transitioning can be made easier by using conversion charts! Respect the KIS principle Keep it Simple. Conversion charts are gold for updating documents for a smooth transition from 2013 to 2014. Look around, there are lots available. The California Law revision Commission (CLRC) responsible for rewriting and relocating the Act. It's goal was to make the Act more user-friendly, and to break down the long statutes into [what they saw as] understandable "paragraph bites". The CLRC has a conversion chart on its website (www.clrc.ca.gov). Lots of attorneys also have posted conversion charts for downloading their websites. My own website will have (if not accomplished by now) links to various charts soon. CACM, ECHO and CAI Chapters may offer charts to the public. Just beware of a couple of things. Some charts have incorrect cross references, some have omissions, and few contain accurate subject headings. The CLRC specifically left subject references and titles out of the new law and one particularly important omission incorporating other laws is discussed in more detail below. These published charts cross-referencing the entire Act are very long and useful for general cross-referencing, but are not as useful as attachments to update documents because of their length.
In adjusting documents and policies for transition, you need only those cross-references for pertinent statutes listed in the document. Appropriate attachment and incorporation of a relevant conversion chart to almost any document can make the transition from 2013-2014 very smooth.
So when exactly do we "transition" or "convert" documents?
Starting anytime this year (2013) to work toward transition is good. It is not absolutely necessary though it feels like it with all the hype surrounding the coming of the new Act. Use of conversion charts as described provides a flexible way to transition into 2014. If, as has happened in some cases, an association changes a document before January 1, 2014, to reflect the 2014 law without any cross reference to existing law, it causes confusion because the new law is not effective until 1/1/2014.
What about our disclosures sent out this year for the fiscal year 2014, do they have to be consistent with the new law?
The annual disclosures sent out to members between now and the end of the fiscal year don't have to reflect the 2014 law because 2014 is not here yet. Any parts to the package that a board wants to amend can be accomplished in 2014. The actual financial requirements (Annual Budget Report) do not change 2013 to 2014, but the format does. The format for the disclosure requirements related to distributing policy information changes also. The Annual Disclosure Package becomes a two part package. It always makes sense to be prepared and that could include adjusting policies and documents now if you want to. It can be accomplished by adoption of and inclusion of the helpful summarized conversion charts and a resolution for the board to approve adopting the cross-reference charts or modified statute numbers. Below in this article are notes on some areas that can be addressed in an upcoming 2013 disclosure package to minimize any need to revamp any part of the package and need to send an addendum in 2014
What are the annual disclosure package changes going to be and what can we do now?
Revamp Policies and/or Rules: Just like working with flexing the governing documents, a board can be proactive with policies and rules. For example, the Collections Policy can be revamped by including a conversion chart at the end showing these columns: The 2013 code # / The corresponding 2014 code #s / The subject matter headings.
May we send out notices by email to owners in 2014 without their consent?
This can be accomplished by preparing the summary chart and attaching it to the policy or rule, and formally re-adopting it by board action, preferably by a resolution. In many cases code numbers that appear in the text of the policy or rule can be eliminated, but unless the subject matter is identified on the conversion chart, it will be difficult to impossible to locate the proper code cross-reference without the original code reference. The law did not change as to the wording relating to collections, just the code numbers, so the Board can make this change officially by motion or resolution signifying approval at a board meeting. No documents need to be sent out for owner voting or comment to integrate the cross-referencing means of transition. The same applies to the fining policy if you have one, which must be sent out with the annual policy statement disclosure packet since it is an enforcement-related policy. The same applies to any other enforcement, IDR or ADR policy, i.e., changes can be made to reflect cross-references to code numbers without pre-board-adoption owner comment.
Rearrange the Annual Package: The new Davis Stirling Act reorganization of the annual disclosure package for owners makes a lot of sense. It breaks the package down to two sections: financial and policy.
Financial Portion (New Civil Code Section 5300): The "Annual Budget Report" portion of the annual disclosure package contains the financial information such as the budget, reserves information including the study with the component list and funding plan, and the detailed worksheet containing the statements about how shortfalls in funding will be met in the coming years. The budget report also includes the information about insurance coverage and association loans. The checklist is provided under Disclosures right here on my website. None of these items is new; they just going to be found under new statute numbers. A summary conversion chart can be made up for the Annual Budget Report, showing the corresponding cross-reference to statutes and subject. Again, a board does not need to include the entire conversion chart covering all of the statutes of the Davis Stirling Act. It's just too cumbersome. It is more work to prepare a summary chart, but much more useful if it is unencumbered by extraneous references.
Policy Portion (New Civil Code Section 5310): The second part of the annual disclosure package is called the "Annual Policy Statement". This portion includes the association policies that must be circulated. The checklist is provided under Disclosures right here on my website. Any of these items can be refined with the summary conversion chart added at the end, showing the 2013 law / 2014 corresponding laws / and subject matter. There are a few other additions to the annual policy aspect of the association. The law says Boards must provide owners the contact information for the Association. Most boards have been doing this anyway by providing the name and address for the management company or the board secretary. And boards that did not provide this kind of information in the past left owners to their own devices, like handing items to the board president at the swimming pool or coming to a director's home during dinner time and knocking on the door. Other new information to be included in this annual policy statement includes a statement that a member may request to have notices sent to up to 2 addresses, the general location for posting general meeting notices, and the option for the member to receive these general notices by individual delivery (which is intended to be helpful to owners who live off-site).
Currently disclosure package items, which remain the same in 2014, are collection policies, dispute resolution summaries, how to obtain minutes, where overnight payments of assessments can be made, and architectural process policies and in the coming months, you can look for links to samples of these on my website.
Boards may send out email notices to owners when owners provide their addresses. However, there is a distinction between just sending an email notice and expecting that notice to satisfy legal notice requirements specifically calling for other methods of delivery such as mailed notices. An owner's written consent to receive notice by email is still required if a board is trying to satisfy a legal requirement to "distribute" notice which is the case for distribution of the annual disclosure packet. The consent form for giving permission should make it clear to the member what they are agreeing to receive by email. And the new law says that any record or document provided by email must be capable of printing and retention by the recipient. (Civil Code Section 4055). In the new law there are 3 specific types of notices laid out. Adopting a full-fledged Notice Policy and including it in your annual disclosure package this year makes a lot of sense, to get the jump on next year, and to provide items will eventually have to be included in the annual package anyway. If you stick to the law, no owner comment period is required. Here are the new categories:
NOTICES TO THE ASSOCIATION [New Civil Code Section 4035]: The board will have to provide association contact information as described above. If there is a "Notice Policy" adopted and included in the annual disclosure package, it could cover a lot of ground, including the various new required "notices" like stating that if an owner wants to request 2 mailing addresses, opt out of the membership list, or ask for individual notice of general association notices, the owner has to submit a written request to the Association's contact person listed. Thus, an official Notice Policy could cover 5 of the new requirements and provide a useful educational tool for new and future board members and managers.
NOTICES TO MEMBERS: There are two types of notices to members those items requiring individual delivery [New Civil Code Section 4040] which means delivery to the individual member directly, like hearing notices and disclosure packages; and those satisfied by general delivery [New Civil Code Section 4045] which means items sent out to all members or posted for general information purposes, like meeting notices and announcements.
A forward thinking board could add a tear off or separate form to be circulated with a "Notice Policy" asking members to complete and return it, allowing members to indicate whether they want to opt out of the membership list, have items mailed to dual addresses, give consent to email delivery, and if you add blanks to include emergency information, it might enhance the ability to collect critical and important information the board needs to have on file. Asking for completion of such a form fulfills many purposes. Look for sample consent forms later on this year and in 2014 on my website.
New Civil Code Section 4050 is added which says that if delivery involves mailing of a document, it is "deemed" to be complete on deposit in the US mail, clarifying an ongoing question as to whether there is any 5 day rule about when the time starts to accrue for timing a mailing.
Additional Notable Aspects of the Reorganized Act:
In order to avoid a 10 page article, I am summarizing a few of the remaining noteworthy highlights of the new Act. For the most part, the material provisions of the old Act were carried to the New Act and much of the wording remains the same. The intent of the CLRC was not to change the law, but to restate it in terms the average person could understand, to bring laws applying to property use from other sections of the law into the Davis Stirling Act, and to break up run-on sections that had become cumbersome. These are some of those changes:
Civil Code Section 4205 (hierarchy) provides a legal statement of hierarchy in the association documents. At a minimum, it is good for boards and managers to know the law controls if it says "notwithstanding" referring to other documents. The documents control if the law says: "Unless the document says" referring to the document as the authority. And with regard to subjects of most interest to owners, such as regulations on property use, the recorded CC&Rs control over the other governing documents.
Civil Code Section 5350 (director conflicts) specifically prohibits directors from voting [with regard to board actions] on specific decisions that directly affect the director such as disciplinary action, an assessment for damage to the common area, an architectural application, or a transfer of common area for exclusive use.
Civil Code Section 4700 (several property use related codes) directly references statutes from other areas of the law that regulate the use of a member's separate interest. It is the complete impact of this one new law that is commonly inadequately explained on conversion charts. It is essential that it be properly addressed in such summary charts as those made for CC&Rs and policies that address the various topics, as follows: (listed in order as set forth in New Civil Code Section 4700: (a) Civil Code 712 and 713 relating to the display of signs, (b) Civil Code 714 and 714.1, relating to solar energy systems; (c) Civil Code 714.5, relating to modular homes, (d) Civil Code 782, 782.5, and 6150, and Section 12956.1 of the Government Code, relating to racial restrictions; (e) Section 12927 of the Government Code, relating to the modification of property to accommodate a disability; and (f) Section 1597.40 of the Health and Safety Code, relating to the operation of a family day care home.
These are the highlights of the new Davis Stirling Act and this information should help homeowner associations in California prepare for the big transition.
By Beth A. Grimm, Attorney. ECHO East Bay Resource Panel Chairperson, a 20+ year member of ECHO and CAI, past Public Relations Chair of the California Legislative Action Committee (CAI-CLAC), and author of FINDING THE KEY TO YOUR CASTLE, THE CONDO OWNERS HANDBOOK by Sourcebooks, THE DAVIS STIRLING ACT IN PLAIN ENGLISH, and other helpful community association publications.