LAWS REGULATING CONDOMINIUMS (COMMON INTEREST DEVELOPMENTS)

I. The Davis-Stirling Common Interest Development Act.

The Davis-Stirling Common Interest Development Act ("Davis-Stirling ") contains the statutory provisions "respecting the creation and essential attributes of common interest developments "in California. Davis-Stirling, passed by the Legislature in 1985 and amended various times during the past decade, consolidated the legislative scheme regulating all common interest developments ( "CIDs ") into one area of the Civil Code.

A. Factors leading to the passage of the Davis-Stirling Act.

In 1984, an Assembly Select Committee identified several problems with the statutory law affecting common interest developments. While many specific problems were identified, the problems were grouped into a few key categories.

First, prior to passage of Davis-Stirling, the laws affecting CIDs were dispersed throughout various sections of different codes. This made location of the law difficult, and, in many instances, the placement of the statutes was "illogical." For example, former Civil Code §783 provided the definition for a condominium, while the rest of the condominium law existed as the "Condominium Act " in former Civil Code §§1350-1370. Also, while the law pertaining to condominiums existed solely in the Civil Code, planned developments, community apartment projects and stock cooperatives were governed by both the Civil Code and Business and Professions Code.

Also, the statutes treated the different types of CIDs differently. Under the pre-Davis-Stirling scheme, different legal rules applied to the various types of CIDs, creating statutory advantages for certain CIDs that were not available to the others. For instance, the covenants, conditions and restrictions ( "CC&Rs ") created by a condominium plan were enforceable by statute as equitable servitudes against all successive owners of condominium units. However, the CC&Rs for other forms of common interest developments were not automatically enforceable. Instead, those CC&Rs had to comply with the common law rules of covenants running with land to be enforceable. One common law rule, for example, requires a conveyance between the original parties to a covenant in order for it to be enforceable against future owners.

Further, there was a lack of express authority for existing practices of CID developers and homeowners' associations. In order to facilitate CID development and operations, developers and homeowners' associations ( "HOAs ") developed practices that, although not prohibited, were not expressly authorized by law. Examples include the designation of exclusive-use common areas (common areas available to more than one, but less than all, of the owners of the separate interests), the recordation of the CC&Rs, and the management of a CID by an association.

The CID Select Committee identified key problems relating to the management of CIDs by associations. The various rules that applied to CID governance were either confusing or they created barriers to effective management. Confusing aspects of the law related to the extent an association could impose penalties for delinquent assessments and the exact powers of the association itself. Additionally, the law allowed for "alternative management schemes," i.e., not associational, for condominiums, which only provided confusion on the issue of CID management.

B. The Legislative Response: Davis-Stirling.

Davis-Stirling consolidated, clarified, and simplified many aspects of CID law. It reorganized CID law by consolidating much of the law governing the creation and management of CIDs to one are of the Civil Code. Those aspects of the Business and Professions Code respecting CIDs were repealed.

Moreover, to the extent possible, the legislature attempted to treat the various CID types similarly All CID CC&Rs must be recorded and are enforceable by statute as equitable servitudes. Section 1367 of the Davis-Stirling Act consolidates the legal rules pertaining to the levying and collection of assessments, whereas those rules were previously inconsistent in application to condominiums and planned developments. Prior to the enactment of §1367, the assessments on planned development units only became liens on the units when they became delinquent, while condominium assessments automatically became liens upon assessment.

Davis-Stirling addressed many of the operational and management problems by making express rules for governance and maintenance. Most importantly, the Act provides a uniform set of definitions for all CIDs. Pertinent examples include common definitions for "common area " and "separate interest" for each CID type. Also, "exclusive use common areas" were created to allow owners to designate exclusive-use common areas that benefited certain separate ownership interests.

Davis-Stirling also simplified aspects of CID governance. Instead of alternative schemes of management, all common interest developments must now be governed by an association Also, associations are governed by the non-profit mutual benefit corporation law, even if they are not incorporated.

 In addition to consolidation, simplification, and equal treatment, Davis-Stirling also made other substantive changes in 1985 (the year of passage of the initial act), and in succeeding years. Some of those changes included:

• The definition of "common interest development" was simplified in 1989. A "common interest development" is now a community apartment project, a condominium project, a planned development or a stock cooperative;
• In order for new developments to be governed by Davis-Stirling, a declaration must be recorded with the official recorder of the county in which the CID is located. The declaration must contain a legal description of the CID, identification of the type of CID, the name of the association, and the restrictions intended to be equitable servitudes;
• With a few exceptions (e.g., emergencies), the association may not increase regular assessments more than 20% above those for the preceding fiscal year without consent of the majority of a quarum of owners;
• The delinquency period for assessments was reduced from 30 days to 15 days.

These are just the basic changes of the CID law. Since the initial Act was passed in 1985, the law has been amended many times. With the number of common interest developments rising, there are sure to be many more amendments to the law.
 

II. Other Laws that Govern CIDs

Although the Davis-Stirling Act governs the creation and operation of common interest developments in general, several other laws govern certain aspects of CIDs as well.
 

A. Subdivision Map Act

The Subdivision Map Act requires and authorizes local planning regulation of all subdivisions, which includes CIDs, of five or more units. A subdivision is defined as "the division of any improved or unimproved land for the purpose of sale, leasing, or financing, immediate or future." The essential requirement of the Map Act compels developers to file tentative and final maps with the local planning authority.34 These maps are reviewed by the local planning agency to assure compliance and consistency with the city's general plan and any specific plan enacted to implement the general plan.
 

B. Subdivided Lands Act

CID subdivisions are also subject to the Subdivided Lands Act. This law applies in the pre-development stage to regulate the sale and offer of interest in subdivided projects. The primary requirement of the Act is the subdivision public report, which is intended to "assure adequacy and full disclosure" in connection with the offer and sale of subdivisions to protect purchasers from fraud and deceit.
 

C. State Local Planning Law

This law authorizes each local government to establish an agency to regulate local land use planning. It requires each city to develop a general land use plan and specific plans as necessary. The local planning law is relevant to CID development, because CIDs must be consistent with the general plan, relevant specific plans, and any zoning controls enacted thereunder.
 

D. The Nonprofit Mutual Benefit Corporations Law

Most CID associations that incorporate do so as nonprofit mutual benefit corporations. The Nonprofit Mutual Benefit Corporations Law40 and other sections of the Nonprofit Corporations Law govern aspects of association governance.41 As mentioned previously, Davis-Stirling provides that associations are governed by the law even if they choose not to incorporate.

This law provides the basic rules for homeowner association governance. It deals with the aspects of voting rights, manner and timing of notices to members, meetings, and director selection and removal. One very notable application of the Nonprofit Mutual Benefit Corporations Law is that "owners associations" are exempted from the general rule that bars members from holding more than one membership in a nonprofit mutual benefit corporation Thus, an owner of more than one separate interest may hold more than one membership in an association.
 

E. Other Laws

Other California statutes also apply in varying degrees to CID creation, management or operation, depending on the circumstances. They include: the California Environmental Quality Act (CEQA) (requiring review of environmental impact of any "project"); the California Coastal Act (requiring review by Coastal Commission whenever a development is within 1,000 yards of high tide land); the State Zoning Law (to ensure consistency with state and local zoning regulations); and Government Code §§65864 - 65869.5 (relating to a local entity's authority to enter into development agreements with private parties to encourage private participation in long range land use planning).
 

III. Recent and Pending Legislation

During the 1990's, the legislature debated various pieces of legislation affecting CIDs. Most of the legislation that was introduced related to CID management. While some of the legislation could only be considered legislative fine-tuning, other pieces significantly affected (or could, in the future, significantly affect) the right and duties of HOAs and their executive boards.

Some amendments to Davis-Stirling in recent years have expanded the rights of HOAs, or protected their interests in some manner. For example, in 1992 the Legislature added Civil Code section 1355.5 to Davis-Stirling, which allows HOAs to delete from its governing documents any provisions intended to promote the developer's marketing or construction of the CID once the development was completed. Another notable example was the legislature's restriction on the ability of managing agents to withdraw from HOA accounts, including reserve accounts.

However, other recently enacted amendments to Davis-Stirling have placed more burdens on HOA executive boards in relation to CID governance. The most notable amendment is the addition of Civil Code section 1363.05, which imposes more exacting requirements for open meetings of the HOA. Also, the HOA executive board must meet certain requirements before it withdraws from reserve accounts and it must provide reports to all homeowners on a periodic basis.

Other amendments prevent HOAs from placing certain types of restrictions on owners. For example, HOAs are expressly prohibited from restricting owners from placing certain types of television and video antenna, such as satellite dishes, on its separate interest property. The legislature has attempted to pass other prohibitions on HOA CC&Rs. For example, in the 1995 term the legislature passed AB 3056, which would have made void and unenforceable any restriction against the operation of motorcycles within a development. The bill was vetoed by the governor.

Some "builder-friendly" bills have also been enacted. These bills, which also place burdens on HOAs, have their most significant impact on construction defect litigation. For instance, an HOA must have an open meeting at least 30 days before bringing a civil action against a developer for any construction defect.53 More importantly, the Legislature recently added Civil Code §1375. That section places several requirements on an association before it brings an action against the builder for construction defect. They include: written notice (which must include a list of defects, a summary of testing on the defects, proposed methods of repair), a process to "meet and confer," and the possibility of alternative dispute resolution.
 

CONCLUSION

Common interest developments in California are subject to several different statutes. The major statute governing the creation and major attributes of CIDs, however, is the Davis-Sterling Common Interest Development Act. That Act was designed to clarify and consolidate the various statutory provisions governing CIDs. Several other statutes, including the Subdivision Map Act and State Local Planning Law, impact aspects of CID development. Each year legislation is introduced, and sometimes enacted, to amend and fine-tune the Davis-Sterling Common Interest Development Act and other laws governing CIDs

- Daniel R. Stern