The California Legislature sent numerous Assembly and Senate Bills to the Governor’s desk for signature. With the state in a fiscal budgetary crisis, Governor Schwarzenegger kept the Common Interest Development (CID) community in suspense right up until the last day of the 2008 legislative session. The Governor vetoed much of the proposed legislation and signed only a handful of bills that directly apply to CIDs. The following significant bills affecting CIDs were either chaptered into California law and/or go into effect on January 1, 2009.

A. Assembly Bill 2100 (2006) – RESERVE FUNDING PLAN SUMMARY

– Civil Code Section 1365(b) (Chaptered in 2006; Effective January 1, 2009)

Civil Code section 1365(b), chaptered in the 2006 California Legislative Session, goes into effect January 1, 2009. Commencing on January 1, 2009, homeowners associations will be required to distribute a “Reserve Funding Plan” (“RFP”) summary to the membership.

Currently, associations are required to have a reserve study performed every 3years. The study must consist of a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore and maintain, in relation to the association’s“reserve account requirements” (defined as the estimated funds that the board of directors has determined are required to be available at a specified point in time to repair, replace, or restore such components). The board of directors is also currently required to review the reserve study annually and must consider and implement necessary adjustments to its analysis of the reserve account requirements, as a result of the review.

Under Civil Code section 1365(b), a summary of the RFP adopted by the board of directors pursuant to Civil Code section 1365.5(e)(5) (note: Section 1365(b)contains an incorrect cross-reference to Section 1365.5(e)(4)), must be distributed to the association’s membership annually with the budget. Section 1365.5(e)(5)requires the reserve study to include an RFP as follows:

1. The RFP must indicate how the association plans to fund the estimated annual contribution necessary to defray the cost to repair, replace, restore and maintain components with an expected remaining life of 30 years or less(not including components that will not be replaced).

2. The RFP must include a schedule of the date and amount of any change (i.e. increase) in regular or special assessments that would be needed to sufficiently fund the RFP. Any assessment increases in excess of 20% of prior year regular assessments or special assessments in excess of 5% of the annual budgeted gross expenses remain subject to membership approval, as set forth in existing Civil Code section 1366.

3. The RFP must be adopted by the board of directors at an open meeting. Remember that any notice of meeting to the members must now include the agenda, and adoption of the RFP should be listed as an action item.

4. The annual summary required by Civil Code section 1365(b) must include notice to the members that the full RFP is available upon request, and the association is required to provide same to any member upon their request.

5. Existing law requires the association to include a statement as to whether the board of directors has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or to provide adequate reserves. If such a statement is required, the statement must set forth the estimated amount of the special assessment, commencement date and duration of same. This required statement and disclosure must be consistent with the RFP adopted by the board.

6. Civil Code section 1365.2.5 requires the Association to distribute an“Assessment and Reserve Funding Disclosure Summary.” This disclosure is required to include the estimated amount required in the reserve fund at the end of each of the next five budget years, projected reserve fund cash balance in each such year, and percentage that the reserves are funded. Under the new law, the statement must also include the amount of the projected reserve fund cash balance for each year, and percentage that the reserves will be funded, assuming that the RFP is implemented.

Many of these figures will be estimates formulated with the assistance of the association’s reserve study analyst. Associations should consult with both its reserve study analyst and legal counsel to prepare the required documents and disclosures. If the association is not yet due for an updated reserve study, we recommend utilizing the existing reserve study to prepare the RFP, for any disclosures made on or after January 1, 2009.

B. Assembly Bills 1892/2180 – SOLAR ENERGY

– Civil Code section 714 (Effective January 1, 2009)

Civil Code section 714 currently provides that restrictions contained in any deed, contract, security instrument or other instrument regarding real property that effectively prohibit or restrict the installation or use of a solar energy system are void and unenforceable, except as specified in the Code. Whenever an association requires approval for the installation or use of a solar energy system, the application for approval must be processed and approved in the same manner as an application for architectural modifications. Applications for solar energy systems must not be willfully avoided or delayed. Failure to comply with the Code can result in civil penalties up to $1,000.00.

Effective January 1, 2009, Civil Code section 714 is amended to specifically include restrictions contained in the “governing documents” of an association, as defined in Civil Code section 1351. This means that if an association’s CC&Rs, architectural guidelines, rules and regulations or other documents governing the operation of the association, contain a provision restricting or banning the installation of solar energy systems, the provision will be deemed void and unenforceable. If a homeowners association requires installation of solar energy systems to be approved through an architectural application process, the decision on the homeowner’s application must be in writing. An association must notice the applicant of its decision no later than 60 days after submittal of the application. If the application is not denied in writing within 60 days from receipt of the application, the application shall be deemed approved unless the delay is due to the association’s reasonable request for additional information regarding the solar energy system.

C. Assembly Bill 2846 – ASSESSMENTS – Civil Code sections 1365.1, 1367.6 (Effective January 1, 2009)

The Davis-Stirling Common Interest Development Act provides homeowners associations with the authority to levy and collect assessments. Prior to filing a civil action/lawsuit to enforce the Association’s governing documents or other matters, both the association and the homeowners are required to endeavor to submit their dispute to alternative dispute resolution. This pre-litigation requirement does not apply to a small claims action or an assessment dispute.

Civil Code section 1365.1 is amended to require associations to include in the annual disclosures notice that if a dispute exists between a homeowner and the association regarding any assessment charge or other sum levied by the association, and the amount in dispute does not exceed the jurisdictional limits of small claims court (up to $5,000.00 to $7,500.00), the homeowner may, but is not obligated to, pay under protest any disputed amount, and all other sums levied(including, but not limited to, any assessment, fine, penalty, late fee, collection costs or monetary penalty). By paying the sum under protest, the homeowner specifically reserves the right to contest the disputed charge in small claims court.

AB 2846 adds new Civil Code section 1367.6 setting forth the same language in amended 1365.1, allowing owners to pay, under protest, any disputed charge or sum levied by the association. The homeowner may commence an action in small claims court to contest the disputed charge. The association’s ability to collect delinquent assessments as set forth in Sections 1367.1 and 1367.4 remains unchanged.

D. Senate Bill 1511 – MORTGAGES: NOTICES TO SUCCESSORS IN INTEREST

– Civil Code section 2924b (Effective January 1, 2009)

Current California law requires a trustee or mortgagee to record a notice of default and to post and publish a notice of sale prior to selling real property at a foreclosure sale. Any person desiring a copy of any notice of default and notice of sale may cause to be recorded a request for a copy of those notices, as specified. Mortgagees or trustees are required to provide those notices to such requesting person.

Section 2924b of the Civil Code is amended to allow an association, with respect to separate interests governed by the association, to record a request that a mortgagee, trustee or other person authorized to record a notice of default regarding any of those separate interests mail to the association a copy of any trustee’s deed upon sale concerning a separate interest, as specified. Mortgagees or trustees are now required to mail the information within 15 days following the date the trustee’s deed is recorded. Failure to mail the request will not, however, affect title to the real property.

E. Senate Bill 1107 – MOBILEHOME PARKS: DISABLED ACCOMMODATIONS AND CAREGIVERS

– Civil Code sections 798.34, 799.9, 798.29.6 and 799.11 (Effective January 1, 2009) The Mobilehome Residency Law governs residency in mobilehome parks and includes provisions that are applicable to those who have an ownership interest in a subdivision, cooperative, or condominium for mobilehomes, or a resident-owned mobilehome park, as specified. Among other things, these provisions set forth the rights of residents and homeowners regarding the use of the property. SB1107 requires the management of a mobilehome park to permit a homeowner or resident to install accommodations for the disabled on the home or the site, lot, or space on which the mobilehome is located, under specified conditions. Management is authorized to require that the accommodations installed be removed by the current homeowner at the time the home is removed from the park or pursuant to a written agreement prior to the completion of the resale of the home, as specified.

Existing law authorizes a homeowner who is 55 years of age or older and has a tenancy in a mobilehome park under a rental agreement to share his or her mobilehome with any person over 18 years of age if that person is providing live-in health care or live-in supportive care to the homeowner pursuant to a written treatment plan prepared by the homeowner’s physician. Management of the mobilehome park is prohibited from charging a fee for that person. The person providing care or supervision does not have rights of tenancy in the mobilehome park. SB 1107 expands these provisions to apply to any homeowner without regard to the age of the homeowner/resident.

F. Federal – SWIMMING POOL AND SPA SAFETY

– 15 U.S.C. 8001, sections 1401, et seq. (Effective December 20, 2008)

The Virginia Graeme Baker Pool and Spa Safety Act (“Act”) became effective December 20, 2008. The Act was signed into law on December 19, 2007, and is named after the granddaughter of former Secretary of State, James Baker, after she died in a tragic swimming accident when she became entrapped under the water by the suction for a spa drain. The Act is aimed at reducing pool and spa drowning and submersion deaths by requiring certain performance standards for suction devices and drain covers, among other things.

The Act applies to public swimming pools and spas. A “public pool and spa” is defined in the Act as a pool or spa that is open exclusively to members of an organization and their guests, or those open exclusively to residents of a residential real estate development or other multi-family residential area. This definition includes pools and spas within common interest developments. Although the Act does not expressly preempt state law, the Act does set forth minimum requirements that state law must meet.

No later than December 20, 2008, all public pool and spa drain covers and drain systems must meet the new federal standards. Drain covers must conform to the ASME/ANSI A112.19.8 – 2007 Standards (American National Standards Institute, published by the American Society of Mechanical Engineers), regarding suction fittings for use in pools and spas. In addition to these drain covers, additional devices or systems must be installed to include a safety vacuum release system(SVRS), a suction limiting vent system, a gravity drainage system, an automatic pump shut-off system, a drain disablement or other system determined to be equally effective in preventing suction entrapment. Each public pool and spa pump with a single drain other than an unblockable drain must be equipped with one or more additional devices or systems designed to prevent suction entrapment that meet the requirements of the applicable ASME/ANSI standards or applicable consumer product safety rule.

The U.S. Consumer Product Safety Commission (“CPSC”) is the entity appointed to oversee and enforce the Act. CPSC published a June 16, 2008, “Staff Interpretation” document providing guidance for compliance with the Act. The CPSC urges all public pool and spa owners/operators, state and local health and safety officials and those in the pool and spa industry to review the “Staff Interpretation” as part of the compliance process. CPSC may be contacted atinfo@cpsc.gov or (301) 504-7908.

If your Association has a common area pool or spa, we recommend that you contact your pool vendor immediately for a review of the drain covers and pumps for compliance with the federal requirements.