– By David M. Peters, Esq. (originally published in January, 1998)
During the 1997 Session, the California Legislature was not nearly as prolific as it has been in previous years in enacting legislation that affects homeowners associations. However, the following is a summary of some of the pertinent laws that were passed regarding homeowners associations that became effective on January 1, 1998.
Civil Code Section 1363.1 was originally effective in January, 1990, but, by its own terms expired on December 31, 1996. Civil Code Section 1363.1 has been re-enacted and, with certain exceptions, is similar to the previous version of this statute.
“Prospective managing agents” (as the term is defined in the statute) of common interest developments must, within 90 days prior to entering into a management agreement, provide a written statement to the Board that includes the following information:
1. The names and business address of the owners or general partners of the managing agent. If the agent is a corporation, the names and business addresses of the directors and officers plus any shareholders that hold greater than 10% of the shares must be provided;
2. Whether any “relevant” licenses (e.g. real estate, accounting, architectural design, construction, engineering, etc.) have been issued by the state and are currently held by the managing agent, or its officers, directors or shareholders. If a license is held, the statement must also include the following:
(a) The specific license that is held;
(b) The dates the license is valid;
(c) The name of the licensee that appears on the license.
3. Whether any “relevant” professional certifications or designations are held by the managing agent or its officers, directors or shareholders. If any certification is held, the statement must include the following:
(a) What the certification/designation is and what entity issued it;
(b) The dates that the certification/designation is valid;
(c) The names in which the certification/designation is held.
Addition of Civil Code Section 1375.1 Disclosure of Construction Defect Settlement
This bill added Civil Code Section 1375.1 and sets forth information that associations must provide to its members “as soon as reasonably practicable” after design/construction defect claims against the builder have been settled, or “otherwise resolved.” The disclosure requirement is triggered when there has been a settlement or other resolution of claims involving alleged defects occurring in:
(a) the common areas; or
(b) the separate interests that the association is obligated to maintain or repair; or
(c) the separate interests that arise out of or are integrally related to defects occurring in items (a) or (b) above.
Where the defects giving rise to the claim have not been corrected, the association must, in writing, inform the members whose names appear on the records that the matter has been resolved by settlement agreement, or other means. The written disclosure must also include the following information:
1. A general description of the defects that the association reasonably believes (as of the date of disclosure) will be corrected or replaced;
2. A “good faith” estimate (as of the date of disclosure) of when the defects identified in number 1 will be corrected or replaced. NOTE: The association may (and should) state that the estimate may be modified.
3. The status of the claims for defects that are not contained in paragraph 1 (i.e., those that the association does not believe will be corrected or replaced) but were otherwise disclosed to the members, such as in the preliminary list of defects.
The association is allowed to amend the disclosure required by this code section and any amendments will supersede any prior, conflicting information. Disclosure of this information will not waive any privilege that may otherwise attach to this information.
Amendment to Civil Code Section 1368 Disclosure to Prospective Purchasers
As it previously existed, Civil Code Section 1368 provides that an owner of a separate interest in a common interest development must provide certain documents to prospective purchasers. The amendment to Civil Code Section 1368 adds a new requirement that an owner provide a prospective purchaser with a copy of any preliminary list of defects that has been provided to each member of the association under Civil Code Section 1375. Owners do not have to provide this list of defects if there was a settlement or other resolution of any construction defect claims and the association has provided the members with documentation required by Civil Code Section 1375.1 (discussed above). Where the matter has been resolved and the association has provided documentation required by Civil Code Section 1375.1, the owner must provide a prospective purchaser with documentation received by the association under Civil Code Section 1375.1
Amendment to Civil Code Section 1375
In 1995, Civil Code Section 1375 (aka the Calderon Notice) was enacted and set forth procedures that an association must follow prior to initiating litigation for alleged design/construc-tion defects.
One of these prerequisites is that where a board of directors rejects a builder’s settlement offer, it must hold a meeting of the association’s members at least 15 days before any lawsuit against the builder for alleged defects is filed. At least 15 days before this meeting, the board must send to each member of record a notice that identifies, among other items, options that are available to address the problems, including filing a lawsuit.
This new bill adds a requirement that the notification sent to the owners prior to the meeting discussed above also include:
1. A statement of the various alternatives that are “reasonably foreseeable” to pay for the options that are available to address the problems; and
2. Whether those payments are expected to be made from the use of reserve account funds, or by increasing regular, special or emergency assessments.
1. The name of the association as set forth in the CC&Rs or a more current name;
2. The name and address of the managing agent or other person or entity authorized to collect assessments and other association fees;
3. A daytime telephone number of the person listed in No. 2;
4. A list of separate interests, shown by assessor’s parcel number and/or legal description, that are subject to assessments;
5. The recording information identifying the CC&Rs; and
6. The recording information identifying any amendment to a previously recorded statement authorized under this section.
This section was sponsored by the California Escrow Officers Association and is designed to facilitate collection of regular and special assessments and transfer fees. By recording the above information, escrow personnel will be able to contact the correct association person/entity who administers association assessments.