Our CC&Rs were recorded in 2012. Why does our HOA need to revise its CC&Rs to comply with the Davis-Stirling Act effective January 1, 2014?
Over the years, the California legislature has enacted many laws which apply to California Homeowner Associations. The new Davis-Stirling Act, effective January 1, 2014 (“New DS Act”) is different. The New DS Act introduces a paradigm shift, effecting how HOAs conduct elections, make house rules, and the processes the HOA must follow. This is a major paradigm shift, replacing the old paradigm introduced in 1985 with the old Davis-Stirling Act, which previously was the basis of all California CC&Rs prior to the New DS Act.
What are the key elements of the New Davis-Stirling Act paradigm shift?
Here are key examples:
- Prior to January 1, 2014, the election or removal of directors, assessments requiring a vote, amendments of the governing documents and the grant of exclusive use of common area were approved at Member Meetings.
- After January 1, 2014, the election or removal of directors, assessments requiring a vote, amendments of the governing documents and the grant of exclusive use of common area cannot be enacted at a Members’ Meeting. They must be conducted by the Secret Ballot process. (Civil Code §5100 – 5145).
- Prior to January 1, 2014, the Board of Directors could not enact an increase in regular assessments of up to 20% without a vote of the Membership.
- After January 1, 2014, the Board of Directors can enact an increase in regular assessments of up to 20% without a vote of the Membership provided that the Board complies with specific statutory requirements. (Civil Code § 5605, 5300).
What happens if the Members informally meet and elect a Board or approve a grant of an easement over Common Area without following the New DS Act requirements? Is the election of the Board and the grant of easement legally valid?
No. The election of the Members and the grant of easement are not valid and open to legal challenge. For example, a title company may not insure the grant of easement if the HOA’s actions do not meet the new DS Act’s legals requirements. An improper election of directors is also open to challenge by a concerned homeowner or any person who litigates to void improper Board actions by challenging the Board election as non-compliant with the New DS Act Requirements.
I have been told that our current “annual report,” which consist of an income statement, balance sheet, and pro forma budget for the coming year is no longer adequate. Can we keep using our current annual report if our Board believes the New DS Act’s Annual Report requirements are not necessary for our small HOA?
No. The New DS Act’s Annual Reports are more comprehensive. The New DS Act applies to all California HOA from 2-units to 900-units. Real Estate agents, buyers, and lenders reviewing the purchase of a high-end condominium expect the HOA to provide a full Annual Report which provides valuable financial information about the Project, including the Reserve Study report and mandatory disclosures. The trend is that Brokers, buyers, and lenders are beginning to ask for the New DS Act Annual Report in more condominium sales.