By: Thomas M. Ware, II, ESQ
KULIK GOTTESMAN SIEGEL & WARE LLP
As most of you know, the majority of laws that apply to homeowner associations that are charged with the duty of managing and operating condominiums, townhomes, and planned unit developments in California, are found in the Davis-Stirling Common Interest Development Act at Sections 4000, et seq. of the Civil Code. The Act was originally operative January 1, 1986 but has been amended nearly every year since that time.
Below is a brief summary of the amendments adopted by the legislature for 2018, along with an overview of recent decisions of California courts which pertain to common interest developments.
AB 2912: Association Finances
Civil Code §§ 5380, 5500 – 5502, & 5806
AB 2912 was adopted to provide greater protection of homeowners’ association finances.
It is the intent of the Legislature, in enacting this act, to take important initial steps to protect owners in a Common Interest Development from fraudulent activity by those entrusted with the management of association’s finances.
(AB 2912, Section 1.) To that end, it has three primary components: (1) reduce the opportunity for, and reduce the association’s exposure from, embezzlement; (2) create more financial transparency; and (3) make sure that the Association is properly insured if embezzlement occurs.
The Act amends Civil Code Section 5500 to provide that Boards must review the Association’s financial documents on a monthly basis as opposed to the previous quarterly basis requirement. Civil Code Section 5501 was added to clarify that the review may be conducted outside of a meeting so long as the review is ratified at the next Board meeting. Section 5501 provides that the Board members may conduct their reviews independently. It also provides that the Board may delegate this review requirement to a subcommittee consisting of, at least, the treasurer and another Board member.
AB 2912 also expands the financial documents that the Board must be included in this monthly review. Unless the governing documents provide more stringent requirements, the Board’s monthly review must include:
- all the latest bank and financial institution statements;
- current bank reconciliations of Association’s reserves and operating accounts;
- the current year’s actual operating revenues and expenses compared to the current year’s budget;
- income and expense statements;
- the check register;
- the monthly general ledger; and
- delinquent assessment receivable reports.
(Civil Code § 5500(a)-(f).)
The Act also amends Civil Code Section 5380 governing managing agents handling of association funds so as to prohibit electronic transfers of funds greater than $10,000 or 5% of a HOA’s total combined reserve and operating account deposits, whichever is lower, without prior written board approval. (Civil Code § 5380(b)(6).) Civil Code Section 5502 was added to clarify that this limitation applies to transfers by all directors, officers, or other employees as well.
The third component of the Act is intended to increase Association financial protection by making sure that the Association is insured sufficiently against a potential embezzlement or theft. The Act adds Civil Code Section 5806 which provides that, unless the governing documents require greater coverage amounts:
- the Association is required to maintain fidelity bond coverage (i.e., employee dishonesty) for its directors, officers, and employees, in an amount that is equal to or greater than the combined amount of three (3) months of assessments plus reserves;
- this coverage shall include “computer fraud and funds transfer fraud” protection insuring the Association for theft by third parties; and
- if the Association uses a managing agent or management company, the fidelity coverage shall include coverage for dishonest acts by that person or entity and its employees.
SB 261: Email Consent; Notice of Proposed Rule Change
Civil Code §§ 4040 & 4360
Civil Code Section 4040 currently provides that when an association is required to deliver a document by “individual delivery” or “individual notice” it must send it via first class mail or overnight mail unless the owner has consented “in writing” to delivery of the document by email, facsimile, or other electronic means. SB 261 amends Civil Code Section 4040 to authorize the recipient to consent, and revoke said consent, to receive “individual delivery” or “individual notice” by email.
SB 261 also amends Civil Code Section 4360 so as to reduce the requisite thirty (30) day comment period on proposed rule changes to twenty-eight (28) days. Therefore, during months in which there is only twenty-eight days between meetings, an Association can authorize the distribution of a proposed rule change, and approve it at the next Board meeting, so long as the notice is mailed immediately after the Board meeting.
AB 1978 (enacted 2016): Janitorial Service Registration Requirements
Labor Code §§ 1420 -1434
In 2016, the legislature adopted AB 1978. The purpose of the bill was to “lower instances of sexual harassment, sexual violence and human trafficking in property services industry.” (Senate Analyses, 8/19/16, p. 3.) Among other requirements, the legislation mandated that effective July 1, 2018 all janitorial service business register with the Commissioner of the Division of Labor Standards Enforcement (“DLSE”), and annually thereafter. (Labor Code § 1423.) The deadline to register without penalties is October 1, 2018.
A homeowners association that employs a janitor is not subject to the registration requirements in the Act. (Labor Code § 1420(e).) However, a homeowners association that contracts with a janitorial service must hire a registered janitorial service. A homeowners association that contracts with an unregistered janitorial contractor will be subject to fines. (Labor Code § 1432(b).) A fine for a first offense will range between $2,000 to $10,000. Subsequent fines may range between $10,000 and $25, 000. (Id,)
The DLSE commissioner is required to maintain a database of registered janitors that is available to the public online. (Labor Code § 1431.) The Janitorial Contractor Registry can be accessed on the Department of Industrial Relations website at: email@example.com.
SB 1016: Electric Vehicle Charging Stations
Civil Code §§ 4745, 4745.1
SB 1016 amends Civil Code Section 4745(a) to clarify that an owner is permitted to install an electronic vehicle (“EV”) charging station within the owner’s unit as well as his/her designated parking space. The owner still needs to obtain Association approval. In addition, the Act clarifies that the owner is responsible for the cost of the “installation” and electricity usage associated with the charging station. (Civil Code § 4745(f)(1)(D).)
The owner must provide the Association with a certificate of insurance certificate of insurance for the charging station within fourteen (14) days of approval of the application, and each successor owner shall provide the association with the certificate of insurance on an annual basis. (Civil Code § 4745(f)(3).)
SB 1016 also adds Civil Code Section 4745.1 which provides that any provision in the governing documents that effectively prohibits or unreasonably restricts the installation or use of an EV- dedicated time of use (“TOU”) meter is void and unenforceable. The bill extends the specified existing authorization requirements for the charging stations to TOU meters (e.g., the meter must be approved by HOA and the owner needs to pay for the cost of installation and maintenance). The Act also provides:
(Civil Code §§ 4751.1 (g).)
The Association may impose reasonable restrictions on the installation of TOU meters. However, the Association should be careful in doing so. The legislature emphasized that the “policy of the state [is] to promote, encourage, and remove obstacles to the effective installation of EV-dedicated TOU meters.” The legislature adopted penalties consistent with this purpose. An Association that violates this section is liable for actual damages and is subject to a civil penalty of up to $1,000.00. In addition, while an “owner” that prevails in an action to enforce the Act is entitle recover reasonable attorney’s fees, the Association cannot recover its attorney’s fees if it prevails in such an action. (Civil Code § 4745.1(h) & (i).)
SB 1300: Discrimination and Harassment
Government Code §§ 12923, 12940, 12950.2, 12964.5, & 12965
SB 1300 addresses the standard for litigating sexual harassment claims and prohibits employers from requiring employees to sign a release of claims under the Fair Employment and Housing Act in exchange for a raise or as a condition of employment. Among other things, the Act adds Government Code Section 12923 which arguably refutes preexisting case law that requires a plaintiff to prove “that the sexual harassment that occurs in the workplace must be severe or pervasive enough to alter the conditions of employment due to the plaintiff’s sex.” (See, Government Code Section 12923(a); Senate Rules Committee, Bill Analyses, 8/20/18, p. 4.) Rather, liability may be established by demonstrating that “a reasonable person subjected to the discriminatory conduct would find . . . that the harassment so altered working conditions as to make it more difficult to do the job.” (Id.)
While this bill does not deal specifically with homeowners association, it effects homeowners associations with employees. The Legislative Counsel Digest states that the bill specifies that an employer “may be responsible for the acts of nonemployees with respect to other harassment activity.” Thus, to avoid such claims, homeowners association must investigate and take steps to abate harassment even by third parties in order to avoid hostile work environment claims.
SB 1343: Sexual Harassment Training
Government Code §§ 12950 & 12950.1
This bill requires an employer who employs 5 or more employees, including temporary or seasonal employees, to provide at least 2 hours of sexual harassment training to all supervisory employees and at least one hour of sexual harassment training to all nonsupervisory employees by January 1, 2020, and once every 2 years thereafter, as specified. (Government Code § 12950.1(a).) The employer “may develop his or her own training module or may direct employees to view the online training course” provided by the Department of Fair Employment and Housing. (Government Code § 12950.1(j) – (l).)
SB 954: Mediation Confidentiality Disclosure
Evidence Code §§ 1122 & 1129
Pursuant to Evidence Code Section 1119, communications to a mediator or in the course of a mediation are not admissible in evidence or subject to discovery. To the contrary, unless the parties agree otherwise, all communications, negotiations, and settlement discussions by and between participants or mediators are confidential.
SB 954 requires an attorney representing a person participating in a mediation to provide his or her client, as soon as reasonably possible before the client agrees to participate in the mediation or mediation consultation, with a printed disclosure containing the confidentiality restrictions related to mediation. (Evidence Code § 1129(a).) The attorney is required to obtain a printed acknowledgment signed by that client stating that he or she has read and understands the confidentiality restrictions. (Id.) If an attorney is retained after an individual agrees to participate in a mediation, the attorney is required to provide the printed disclosure and secure the client’s written acknowledgment as soon as reasonably possible after being retained. (Evidence Code § 1129(b).)
The bill includes specific language for a printed disclosure that will satisfy the requirements of the Act. (Evidence Code § 1129(c)-(d).) It is important to note that the failure of an attorney to comply with these disclosure requirements does not invalidate an agreement prepared in the course of, or pursuant to, a mediation. (Evidence Code §1129(e).)