Governor Newsom signed a number of bills into law during the last calendar year that affect common interest developments (“CIDs”), such as homeowners associations and stock cooperative corporations. The topics range from election by acclamation to rental restrictions to urban lot splits.
Below is a summary of the three new laws in which we believe our CID and homeowner clients will have the most interest. Of course, if you have any questions about the details of these or the other new laws impacting CIDs, please feel free to contact either of us to discuss.
AB 502 – Election by Acclamation
Voter apathy within CIDs is not uncommon, including in annual elections of directors. Your CID may even have provisions authorizing elections by acclamation. This is the situation where the number of candidates vying for election to the board equal or are less than the number of open seats. In these circumstances, the board votes to seat all candidates to the vacant seats rather than carry out an election by the members through a secret ballot. This process is attractive because (a) the results of the election are already known, given the number of candidates, and (b) the CID saves the cost, time, and labor associated with holding a secret balloting process.
Before January 1, 2022, elections by acclamation were in a legal limbo of sorts: state law required the election of directors be held by secret ballot, but permitted election by acclamation in large associations of six thousand or more units that satisfied detailed statutory requirements. Notwithstanding the requirement for secret ballot elections of directors in all but the largest CIDs, many smaller CIDs carried out director elections by acclamation.
Beginning January 1, 2022, all CIDs may consider qualified candidates elected by acclamation, regardless of the secret balloting requirement of Civil Code Section 5100 or any contrary provision in the governing documents, if all of the following conditions are met:
- As of the deadline for submitting nominations, the number of qualified candidates is not more than the number of board vacancies to be elected;
- The CID has held a regular election for the directors in the last three years;
- The CID provided individual notice of the election and the procedure for nominating candidates;
- The CID provides notice to a nominee and the member submitting the nomination, acknowledging the submission and informing the nominee of whether they are a qualified candidate;
- The CID permits all candidates to run if nominated, unless disqualified by statute; and
- The CID’s board votes to consider the qualified candidates at an open meeting for which the agenda item reflects the name of each qualified candidate that will be seated by acclamation if the item is approved.
Under new Civil Code Section 5103, the initial notice period before the deadline for submitting nominations is significantly increased. In order to meet the notice requirements for an election by acclamation, the initial notice is drawn out, from 30 days before the nomination deadline to 90 days before the nomination deadline – 150 days before the date of the election.
SB 432 – Election of Directors; Election Rules
State lawmakers made a few amendments to the Davis-Stirling Act under SB 432. The most notable changes are summarized below.
Under the law, as amended, inspector(s) of elections may appoint and oversee additional persons to verify signatures and count and tabulate secret ballots votes, as the inspector(s) of elections deem appropriate. The clarification under SB 432 is that the designees must also be independent third parties, who may not be a director or a candidate, or be related to a director or a candidate. Also, the designees may not be a person, business entity, or subdivision of a business entity who is currently employed or under contract to the CID for services other than serving as an inspector of elections.
This change is particularly noteworthy because, in response to a prior law change in 2020, CIDs were no longer able to have its manager or counsel serve as inspector of election. As an alternative, some CIDs had appointed inspector of elections, who then delegated the duties of verifying signatures and counting and tabulating votes to someone who would not have been appropriate to serve as the inspector of elections. SB 432 requires that those persons verifying signatures or counting votes meet the same independent, third-party requirement as the inspector of elections.
SB 432 also clarifies that two notice requirements that are a part of the secret ballot timeline only apply to elections of directors and for recall elections. Civil Code Section 5115 requires a CID to include the following items in its timeline for director elections or recall:
At least 30 days before the deadline for nominations (90 days before voting deadline) – Notice of nomination procedure and deadline for submitting a nomination.
At least 30 days before distributing ballots (60 days before voting deadline) – Notice of a) the date and time by which and the location where ballots are due, b) date, time, and location of the meeting at which ballots will be counted, and c) list of all candidates’ names that will appear on the ballot.
At least 30 days before voting deadline – Inspector(s) of elections sends secret ballots and copy of election rules.
Voting deadline & date of election
(NOTE: This timeline only applies to director elections or recalls; it does not apply to secret ballot votes on any other matters.)
The final major change concerns association records. SB 432 expanded the meaning of “Association records” for purposes of record inspection to include bank account statements for bank accounts in which assessments are deposited or withdrawn. SB 432 also clarified that a CID must maintain association election materials for one year after an election. These two changes add greater transparency into and access to association records, which members have the right to inspect and copy under the Davis-Stirling Act.
AB 1584 – Rental Restrictions
AB 1584 was a housing bill that amended multiple state code sections concerning housing. Most pertinent to CIDs, Civil Code Section 4741 was amended to the benefit of CIDs.
Civil Code Section 4741 was originally enacted into law on January 1, 2021. See last year’s new law update for a detailed discussion about the law.
The essence of Civil Code 4741, as enacted on January 1, 2021, is that an owner of a separate interest in a CID shall not be subject to a provision in a governing document that prohibits, has the effect of prohibiting, or unreasonably restricts the rental or leasing of a separate interest, accessory dwelling unit, or junior accessory dwelling unit.
Also, under Civil Code Section 4741, as it existed during 2021, CIDs were required to amend their governing documents to comply with the Civil Code Section no later than December 31, 2021.
AB 1584 now requires a CID’s board of directors, without approval of its members, to amend any restrictive covenant in the governing documents to comply with Civil Code section 4741 not later than July 1, 2022. Under this change, a CID’s board is required to able to amend and restate the pertinent governing documents to remove the restrictive covenant with 28-days’ notice to the CID’s members. Civil Code Section 4741 previously would have required any amendment to the governing documents to be approved through the more onerous secret ballot process.
If you have further questions regarding these new laws and their impact upon your common interest development or business, please contact Bill Scherer at wms@sfcounsel.com or Louis Sarmiento at ljs@sfcounsel.com.
By William M. Scherer, Esq., and Louis J. Sarmiento, Esq.