(1)Existing law requires that a person or firm who will act as a common interest development manager provide specified disclosures to the board of directors of the homeowners association, including whether the prospective manager is certified, holds an active real estate license, and the managers name and address.

This bill would require a manager or a common interest development management firm to disclose specified information before entering into a management agreement. The bill would require a disclosure on whether the manager receives a referral fee from 3rd parties for distributing required documents and an affirmative written acknowledgment that specified documents provided to the manager are the property of the association and not the manager.

(2)The Davis-Stirling Common Interest Development Act defines and regulates common interest developments. The act requires a common interest development to be managed by an association. The act requires the association to distribute an annual budget report 30 to 90 days before the end of its fiscal year. Existing law requires the annual budget report to include specified information.

This bill would additionally require the annual budget report to contain specified information relating to charges for requesting copies of certain documents from the association.

The act requires a prospective managing agent of a common interest development to provide a written statement to the board of the association containing specified information concerning the managing agent. The act also requires the association to provide to the owner of a separate interest, upon request, specified documents.

This bill would require that the manager, common interest development management firm, or its contracted agent facilitate the delivery of the documents requested, if this responsibility is required by the management contract. The bill would modify the specified form used to identify the charges for requesting copies of documents held by the association by requiring the form to inform a seller that he or she is not required to purchase all of the documents listed on the form and may purchase some or all of the documents as desired. The bill would also require a prospective manager or prospective management firm of a common interest development when presenting a bid for services to the board to include a disclosure of any conflict of interest, as defined.

(1)Existing law requires that a person or firm who will act as a common interest development manager provide specified disclosures to the board of directors of the homeowners association, including whether the prospective manager is certified, holds an active real estate license, and the managers name and address.

This bill would require a manager or a common interest development management firm to disclose specified information before entering into a management agreement. The bill would require a disclosure on whether the manager receives a referral fee from 3rd parties for distributing required documents and an affirmative written acknowledgment that specified documents provided to the manager are the property of the association and not the manager.

(2)The Davis-Stirling Common Interest Development Act defines and regulates common interest developments. The act requires a common interest development to be managed by an association. The act requires the association to distribute an annual budget report 30 to 90 days before the end of its fiscal year. Existing law requires the annual budget report to include specified information.

This bill would additionally require the annual budget report to contain specified information relating to charges for requesting copies of certain documents from the association.

The act requires a prospective managing agent of a common interest development to provide a written statement to the board of the association containing specified information concerning the managing agent. The act also requires the association to provide to the owner of a separate interest, upon request, specified documents.

This bill would require that the manager, common interest development management firm, or its contracted agent facilitate the delivery of the documents requested, if this responsibility is required by the management contract. The bill would modify the specified form used to identify the charges for requesting copies of documents held by the association by requiring the form to inform a seller that he or she is not required to purchase all of the documents listed on the form and may purchase some or all of the documents as desired. The bill would also require a prospective manager or prospective management firm of a common interest development when presenting a bid for services to the board to include a disclosure of any conflict of interest, as defined.

(1)Existing law requires that a person or firm who will act as a common interest development manager provide specified disclosures to the board of directors of the homeowners association, including whether the prospective manager is certified, holds an active real estate license, and the managers name and address.

This bill would require a manager or a common interest development management firm to disclose specified information before entering into a management agreement. The bill would require a disclosure on whether the manager receives a referral fee from 3rd parties for distributing required documents and an affirmative written acknowledgment that specified documents provided to the manager are the property of the association and not the manager.

(2)The Davis-Stirling Common Interest Development Act defines and regulates common interest developments. The act requires a common interest development to be managed by an association. The act requires the association to distribute an annual budget report 30 to 90 days before the end of its fiscal year. Existing law requires the annual budget report to include specified information.

This bill would additionally require the annual budget report to contain specified information disclosing referral fees or financial benefits received by a common interest development manager or common interest development management firm and disclosing any conflicts of interest regarding the manager or firm. information relating to charges for requesting copies of certain documents from the association.

The act requires a prospective managing agent of a common interest development to provide a written statement to the board of the association containing specified information concerning the managing agent. The act also requires the association to provide to the owner of a separate interest, upon request, specified documents.

This bill would require that the manager, common interest development management firm, or its contracted agent facilitate the delivery of the documents requested. requested, if this responsibility is required by the management contract. The bill would modify the specified form used to identify the charges for requesting copies of documents held by the association by requiring the form to inform a seller that he or she is not required to purchase all of the documents listed on the form and may purchase some or all of the documents as desired. The bill would also require the written statement provided by a prospective by a prospective managing agent a prospective manager or prospective management firm of a common interest development when presenting a bid for services to the board to include specified conflict-of-interest and fee disclosures a disclosure of any conflict of interest, as defined.

(1)Existing law requires that a person or firm who will act as a common interest development manager provide specified disclosures to the board of directors of the homeowners association, including whether the prospective manager is certified, holds an active real estate license, and the managers name and address.

This bill would require a manager or a common interest development management firm to disclose specified information before entering into a management agreement. The bill would require a disclosure on whether the manager receives a referral fee from 3rd parties for distributing required documents and an affirmative written acknowledgment that specified documents provided to the manager are the property of the association and not the manager.

(2)The Davis-Stirling Common Interest Development Act defines and regulates common interest developments. The act requires a common interest development to be managed by an association. The act requires the association to distribute an annual budget report 30 to 90 days before the end of its fiscal year. Existing law requires the annual budget report to include specified information.

This bill would additionally require the annual budget report to contain specified information disclosing referral fees or financial benefits received by a common interest development manager or common interest development management firm and disclosing any conflicts of interest regarding the manager or firm.

The act requires a prospective managing agent of a common interest development to provide a written statement to the board of the association containing specified information concerning the managing agent. The act also requires the association to provide to the owner of a separate interest, upon request, specified documents.

This bill would require that the manager, common interest development management firm, or its contracted agent facilitate the delivery of the documents requested. The bill would also require the written statement provided by a prospective by a prospective managing agent of a common interest development to the board to include specified conflict-of-interest and fee disclosures

 CONSENT  

Bill No: AB 690

Author:

:

Vote:

SENATE TRANS. & HOUSING COMMITTEE: 13-0, 6/6/17

AYES: Beall, Cannella, Allen, Atkins, Bates, Gaines, McGuire, Mendoza, Morrell, Roth, Skinner, Wieckowski, Wiener

SENATE JUDICIARY COMMITTEE: 6-0, 6/27/17

AYES: Jackson, Moorlach, Anderson, Hertzberg, Stern, Wieckowski

NO VOTE RECORDED: Monning

ASSEMBLY FLOOR: 79-0, 5/15/17 (Consent) - See last page for vote

SUBJECT:

SOURCE: California Association of Realtors

DIGEST:

This bill requires a common interest development (CID) manager or management company to disclose certain information before entering into a management agreement with a homeowner’s association (HOA) and requires the HOA annual budget to contain specified information relating to charges for certain documents provided by the CID manager or management company.

ANALYSIS:

Existing law:

1. Requires a person who either provides or contemplates providing the services of a CID manager to an HOA to disclose the following to the board of directors (board) of the HOA:
   1. Whether the CID manager has met specified requirements to be considered a certified CID manager.
   2. The name, address, and phone number of the association that certified the CID manager, the date the manager was certified, and the status of the certification.
   3. The location of his or her office.
   4. Prior to entering into or renewing a contract with an HOA, whether the fidelity insurance of the CID manager or his or her employer covers the current year’s operating and reserve funds of the HOA.
   5. Whether the CID manager possesses an active real estate license.
   6. A CID manager may provide a specified disclosure statement.
2. Requires an owner of a separate interest in a CID to provide specified documents (i.e. governing documents, restrictions on the use of the separate interest, special fees and assessments, initial list of defects, etc.) to a prospective purchaser of the separate interest.
3. Requires the HOA to provide, upon written request, the owner of a separate interest or any other recipient authorized by the owner, with a copy of specified documents (i.e. governing documents, restrictions on the use of the separate interest, special fees and assessments, initial list of defects, etc). The HOA may collect a reasonable fee from the seller based upon the HOAs actual cost for the procurement, preparation, reproduction, and delivery of the documents. The HOA shall provide a written or electronic estimate of the fees that will be assessed for providing the requested documents prior to processing the request on a specified “Charges for Documents Provided” disclosure form.
4. Requires the HOA to distribute an annual budget, and shall contain, among other things, the following:
   1. A pro forma operating budget.
   2. A summary of the HOA’s reserves.
   3. A summary of the reserve funding plan adopted by the board.
   4. A statement as to whether the board has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less.
5. Requires a prospective managing agent of a CID to provide a written statement to the HOA board as soon as practicable, but no more than 90 days before entering into a management agreement, including but not limited to:
   1. The names and business address of the owners or general partners of the managing agent.
   2. Whether or not any relevant licenses such as architectural design, construction, engineering, real estate, or accounting have been issued by the state and are currently held by the persons noted in (a) above.
   3. Whether or not any relevant professional certifications or designations such as architectural design, construction, engineering, real property management, or accounting are currently held by any of the persons specified in (a), including, but not limited to, a professional CID manager.

This bill:

1. Requires a person who either provides or contemplates providing the services of a CID manager to a HOA to also to disclose the following to the board:
   1. Whether or not the CID manager receives a referral fee or other monetary benefit from a third party distributing documents required as part of the HOA annual budget report.
   2. An affirmative written acknowledgement that the disclosure provided to an HOA member or potential HOA member and all documents provided as part of an annual disclosure and annual HOA budget report are the property of the HOA and not its managing agent or the agent’s managing firm.
2. Amends the specific “Charges for Documents Provided” disclosure form for HOA documents to state that a seller may provide to a prospective purchaser, at no cost, current copies of specified HOA documents, such as governing documents, restrictions on the use of the separate interest, special fees and assessments, initial list of defects, etc. Additionally, a seller may request to purchase some or all HOA-related documents, but shall not be required to purchase all of the documents listed on the form.
3. Requires the HOA, as part of the annual budget, to provide a copy of the completed “Charges for Documents Provided” disclosure form. Completed means that the “Fee for Document” section of the form individually identifies the costs associated with providing each document listed on the form.
4. Requires a prospective managing agent of a CID to provide a written statement to the HOA board as soon as practicable, but no more than 90 days before entering into a management agreement, to also provide the following information:
   1. Disclose any business or company in which the CID manager or CID management firm has any ownership interests, profit-sharing arrangements, or other monetary incentives provided to the management firm or managing agent.
   2. Whether or not the CID manager or CID development management firm receives a referral fee or other monetary benefit from a third-party provider distributing HOA-related documents.
5. Requires a CID manager or CID management firm to disclose in writing any potential conflict of interest when presenting a bid for service to an HOA board. Defines “conflict of interest” as follows:
   1. Any referral fee or other monetary benefit that could be derived from a business or company providing products or services to the HOA.
   2. Any ownership interests in profit-sharing arrangements with service providers recommended to, or used by, the HOA.

Comments

1. Purpose of the bill. According to the author, this bill will, among other things, require HOAs to deliver, within the annual budget report, an itemized estimate of the fees that may be charged by a professional management company for documents necessary to facilitate a real estate transaction. To improve notice to HOA members, this bill requires HOAs to disclose to their members in the association’s annual report, which is mailed to every member of the HOA, a copy of a form showing all fees that may be charged by the management company or third party provider in connection with the delivery of documents required to facilitate the transfer of real property. This clarification to current law will help home owners prepare for costs associated with the transfer of real property by assuring all owners have advanced notice of the costs associated with document production prior to engaging in the escrow process. Management companies will also be required to disclose any conflicts of interest when initiating a management contract or presenting bids for service to the HOA board. This bill will help HOA owners prepare for costs associated with the transfer of real property and to assure that the HOA board has the tools necessary to make informed decisions regarding proposed service providers by requires these companies to disclose any financial/monetary benefits they will receive in exchange for recommending a service provider.
2. Unbundling HOA document reproduction fees. Under current law, the seller of an interest in a CID must provide certain documents to a prospective buyer, which must be obtained from the HOA. The author points to examples in which the CID management company or staff refused to provide individual documents requested and instead provided all HOA documents. The management also charged the seller for the reproduction of all those documents, which, according to the sponsor often amounts to between $300 and $1500. This bill permits a seller to request individual documents and be charged for those documents only. Further, this bill requires the HOA to provide a copy of the “Charges of Documents Requested” form in the annual budget.
3. New CID manager disclosures. This bill also requires CID managers and management companies to disclose additional information, which identify any potential conflicts of interest. According to the sponsor, some management companies have financial interests in companies that they may recommend for use by the HOA, such as a document production company or a gardening company. This bill requires the CID management companies to disclose this information to the HOA so that the HOA is informed of any financial benefits the management company may enjoy.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 6/30/17)

California Association of Realtors (source)

OPPOSITION: (Verified 6/30/17)

None received

ASSEMBLY FLOOR: 79-0, 5/15/17

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Brough, Burke, Caballero, Calderon, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Harper, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Holden

Prepared by:

6/30/17 11:50:42

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: AB 690 (Author:Quirk-Silva)

Version: March 28, 2017

Hearing Date: June 27, 2017

Fiscal: No

Urgency: No

Consultant: TSG

SUBJECT

Common interest developments: managers: conflicts of interest

DESCRIPTION

The owners of separate property within a common interest development (CID) govern over the CID’s affairs through an association, often known as a homeowners’ association, or HOA. HOAs, in turn, frequently hire individuals or companies to manage the day-to-day operation of the CID. This bill would impose a series of disclosure requirements on these property managers with the aim of increasing transparency around: (1) the fees charged for the provision of legal documents relating to the purchase and sale of property within the CID; and (2) the process for purchasing services for the CID.

BACKGROUND

Common interest developments (CIDs) are self-governing groups of dwellings that share common spaces and amenities. They come in a wide variety of physical formats: condominium complexes, apartment buildings, and neighborhoods of detached, single-family residences, for example. The owners of each individual dwelling within the CID are members of it. CID members are entitled to vote for the leadership of the association that oversees operation of the CID and they are subject to annual assessments that pay for the communal expenses of the CID. In California, CIDs are subject to the Davis-Stirling Act. (Civ. Code Secs. 4000 to 6150.) There are over 50,220 CIDs in the state, comprising over 4.8 million housing units and making up approximately one quarter of the state’s overall housing stock.

While the homeowners’ association governs the affairs of the CID, most associations choose to hire and defer much of the day-to-day operations of the CID to a property manager. In most instances, that will include procuring contracts for the sorts of goods and services that are necessary to keep the CID running smoothly, such as janitorial services, landscaping, billing, maintenance, and construction, for example.

Sometimes the property manager will have a financial stake in what businesses get these contracts, either because the property manager has an ownership interest in that business, or because the business offers some kind of financial reward to the property manager if that business gets the contract. Such scenarios create a conflict of interest for the property manager, since it may be tempted to select or recommend a particular business to do work for the CID based on the property manager’s interests, rather than the interests of the homeowners. This bill would require CID property managers to disclose these sorts of conflicts of interest to the homeowners’ association.

In addition, this bill would clarify the rules around the fees that a homeowners’ association and third parties may charge to homeowners for the documentation that homeowners must provide when offering their property within the CID for sale to a prospective buyer. The sponsors of this bill assert that homeowners’ associations and third parties have found ways of evading the existing limitations on such fees. (See Comment 3 of this analysis, below, for a detailed explanation of this argument.) This bill would close those loopholes.

This bill passed out of the Senate Committee on Transportation and Housing by a 13-0 vote.

CHANGES TO EXISTING LAW

Existing law requires the owner of a separate interest to provide an extensive set of documents, as specified, to a prospective purchaser of the separate interest, as soon as practicable before the transfer of title or the execution of a real property sales contract. (Civ. Code Sec. 4525.)

Existing law requires the HOA, within 10 days of the mailing or delivery of a written request, to provide the owner of a separate interest, or any other recipient authorized by the owner, with a copy of all of the requested documents specified in Section 4525, above. (Civ. Code Sec. 4530(a).)

Existing law requires the owner of a separate interest to provide to a prospective buyer the Document Disclosure Summary Form--a form for billing disclosures required by Section 4530, with the official title “Charges for Documents Provided as Required by Section 4525.” (Civ. Code Sec. 4528.)

Existing law permits the HOA to collect a reasonable fee from the seller based upon the association’s actual cost for the procurement, preparation, reproduction, and delivery of the documents requested under Civil Code Section 4530(a) in relation to a prospective sale of property within the CID. (Civ. Code Sec. 4530(b)(1).)

Existing law provides that any documents not expressly required by Section 4525 to be provided to a prospective purchaser by the seller shall not be included in the document disclosure required by this section. It further prohibits the bundling of documents required to be provided pursuant to this section with other documents relating to the transaction. (Civ. Code Sec. 4530(b)(5).)

Existing law requires a seller to provide to the prospective purchaser, at no cost, current copies of any documents specified by Section 4525 that are in the possession of the seller. (Civ. Code Sec. 4530(b)(6).)

Existing law requires the fee for each document provided to the seller for the purpose of transmission to the prospective purchaser to be individually itemized in the mandatory statement provided by the seller to the prospective purchaser. (Civ. Code Sec. 4530(b)(7).)

Existing law requires the HOA to distribute an annual budget report that includes an operating budget, summary of reserves, repairs, a statement if the board has determined or anticipates to levy any special assessments, any outstanding loans of the HOA, and a summary of the HOA insurance policies. (Civ. Code Sec. 5300.)

Existing law requires that a person or firm that is acting as a CID manager provides specified disclosures to the board of directors of the HOA, including whether the prospective manager is certified, holds an active real estate license, and the manager’s name and address, among other things. (Civ. Code Sec. 5375.)

Existing law requires a prospective manager to provide a written statement to the CID board containing specified information about the prospective CID manager, including names and business addresses of the owners or general partners of the managing agent; whether or not the manager has any relevant licenses such as architectural design, construction, real estate, engineering or accounting; and any relevant professional certifications or designations that the manager holds. (Bus. & Prof. Code Sec. 11504.)

This bill would require that the “Document Disclosure Summary Form”used to list all of the disclosure documents needed to complete a sale of real property, and the corresponding price of each document, includes the following statements:

• that the seller may provide to a prospective purchaser at no costs, current copies of any documents required to provide at the time of sale that are in the possession of the seller; and
• that the seller may request to purchase some of the documents but is not required to purchase all of the documents required to be provided to a buyer at the time of a sale of a separate interest.

This bill would allow a seller to purchase some of the disclosure documents listed on the “Document Disclosure Summary Form,” without being required to purchase them all.

This bill would require homeowner associations to disclose, as part of their annual budget information, a copy of the completed Document Disclosure Summary Form showing the costs associated with providing each document listed on the form.

This bill would require the CID manager, CID management firm, or its contracted agent to facilitate the delivery of disclosure documents as listed on the Document Disclosure Summary Form, if the CID manager or CID management firm is contractually responsible for delivering those documents.

This bill would require a CID property manager to disclose if it is receiving a referral fee or other monetary benefit from a third-party provider distributing the documents that are required to be provided to an owner when he or she sells a separate interest.

This bill would require a prospective CID property manager to disclose to the CID board of directors the following information about potential conflicts of interest before entering into a management contract:

• any business or company in which the CID manager or CID management firm has any ownership interests, profit-sharing arrangements, or other monetary incentives provided to the management firm or managing agent; and
• whether or not the CID manager or CID management firm receives a referral fee or other monetary benefit from a third-party provider distributing documents pursuant to existing disclosure requirements.

This bill would require a CID manager or CID management firm to disclose in writing any potential conflict of interest when presenting a bid for service to the CID board of directors.

This bill would define “conflict of interest” for purposes of the bill, as any referral fee or other monetary benefit that the property manager might derive from a business or company providing products or services to the association, or, alternatively, any ownership interests or profit sharing arrangements that the property manager has with service providers that the property manager uses or recommends that the association use.

This bill would require CID managers to provide an affirmative written acknowledgement each year that disclosure of specified documents to CID members or potential members are the property of the association, and not the CID manager or CID management firm.

COMMENT

1. Stated need for the bill

According to the author:

Specialized seller disclosures are required in sales of units in CIDs. Documents for such sales are typically purchased from the homeowners association of the CID, or from a management company or subcontractor service company of the HOA or management company. For years, there have been complaints from Realtors involved in CID unit sales that their clients are being charged excessive fees for the disclosure documents required for the transfer of real property.

AB 690 will, among other things, require homeowner associations to deliver, within the annual budget report, an itemized estimate of fees that may be charged by a professional management company for documents necessary to facilitate a real estate transaction. [The bill] clarifies that sellers may request to purchase some or all of these documents, but shall not be required to purchase ALL of documents listed on this form.

In support, the California Association of Realtors writes:

Specialized seller disclosures are required in common interest development (CID) unit sales. Documents for such sales are typically purchased from the Homeowners Association (HOA), management company, or a subcontractor service company of the HOA or management company. For years, there have been complaints from realtors involved in CID unit sales that their clients are being charged excessive fees for disclosure documents required for the transfer of real property.

…AB 690… will improve notice to HOA members by assuring all unit owners have advanced notice of the costs associated with document production prior to engaging in the escrow process. This bill will help unit owners to prepare for costs associated with the transfer of real property and assure that the board of directors has the tools necessary to make informed decisions regarding proposed service providers.

2. The problem of excessive fees for real estate transaction disclosures

Separate property within a CID, while owned independently, is subject to a series of obligations and encumbrances by virtue of being part of the CID. The most obvious example is the regular assessment that each separate owner must pay to the association to help cover the expenses of the CID as a whole. Similarly, separate property within a CID frequently comes with restrictions on the types of architectural changes that can be made to the property, how the landscaping must be maintained, and rules about use of common areas.

People considering purchasing separate property within a CID need to know things like how much the assessment will be and what rules they will be subject to if they go ahead with the purchase. With that in mind, California law requires the seller of separate property within a CID to provide documents to prospective purchasers detailing all of the covenants, encumbrances, rules, and regulations that come with the property. (Civ. Code Sec. 4528.)

All of this can amount to a lot of paperwork, and sellers may or may not have all of it on hand to give to the prospective buyer, so the seller will often have to request copies of all of the pertinent documents from the homeowners’ association. To facilitate this process, California law requires that a homeowners’ association provide all requested documents to the homeowner with 10 days of the request. (Civ. Code Sec. 4530(a).) So that the homeowners’ association does not have to bear all of the corresponding costs, California law permits the association to charge a fee for procuring, preparing, reproducing, and delivering the documents. (Section 4530 (b)(1).) At the same time, to prevent the homeowners’ association from taking advantage of the homeowner who, after all, is required by law to obtain these documents in order to sell the property, California law limits the fee that the homeowners’ association can charge to the reasonable, actual costs incurred in producing them. (Ibid.)

According to the sponsor of this bill, however, this system has not worked to prevent sellers from being charged unreasonably high fees for at least two reasons. First, the law permits homeowners’ associations to delegate the business of producing the required documents to a third party. Those third parties, whether a property manager or a company specializing in the service of producing these documents, have apparently taken the position that they are not bound but the same fee limitations that would apply to the homeowners’ association itself.

That position is ostensibly supported by the holding in Berryman v. Merit Property Management (2007) 152 Cal.App.4th 1544. In that case, the appellate court held that state law limiting fees for CID documents applied directly to homeowner associations, but not management companies they contract with. Seizing upon that ruling, HOA property managers and outside companies effectively side-step the “actual cost” limit on the fees.

3. The problem of CID property manager self-dealing and kickbacks

CIDs have regular expenses for the maintenance, repair, servicing, and improvement of common facilities. For example, if the CID has a swimming pool in a common area, the CID will need to pay for regular servicing of the pool as well as any maintenance or repair needed. Similarly, if the CID is having trouble getting homeowners to pay their assessments, the CID may employ a collections agency to help it go after the money owed. Many times, the property manager is responsible for procuring services such as these, or obtaining the bids that will be presented to the association board for consideration. In either scenario, property managers can subtly gain from the transaction if the property managers have an ownership interest in the business that receives the contract (self-dealing) or if the property managers steer the contract to a particular company in exchange for side payments (kickbacks).

This bill would not limit the companies with whom a property manager could contract for the services that the CID needs. The bill would, however, require that property managers disclose any ownership interest greater than 10 percent that the property manager has in any potential recipient of a contract to perform work for the CID. Similarly, the bill would require property managers to disclose any financial gain that the property manager might receive as a result of entering into the contract. This transparency would, the sponsors of this bill believe, enable home association boards to determine whether the selection of any particular service provider genuinely serves the broader interest of the CID, or just that of the property manager.

Support: California Professional Association of Specialty Contractors

Opposition: None known

HISTORY

Source: California Association of Realtors

Related Pending Legislation: None known

Prior Legislation:

AB 2430 (Maienschein, Chapter 185, Statutes of 2014) required the cost for providing the required documents to be separately stated and billed from other charges that are part of the transfer or sales transaction. This bill would authorize an association to collect a reasonable fee from a seller for its actual costs in providing documents under these provisions and would require a seller to be responsible for compensating an association, person, or entity for providing documents under these provisions. This bill would also require a seller to provide a prospective purchaser with certain current documents that the seller possesses free of charge. This bill would prohibit a seller from giving a prospective purchaser the required documents bundled with other documents.

AB 771 (Butler, Chapter 206, Statutes of 2011) established law governing the procurement, preparation, reproduction, and delivery of the disclosure documents required for buying or selling real property within the CID, including: (1) permitting HOAs to collect a reasonable fee for procuring, preparing, reproducing, and delivering the disclosure documents based on the association’s actual cost; (2) prohibiting the association from charging additional fees for electronic delivery of the documents; (3) permitting the association to contract with any person or entity to provide the documents on behalf of the association; and (4) requiring the owner of a separate interest to provide a form listing the fees to a prospective purchaser.

Prior Vote:

Senate Transportation and Housing Committee (Ayes 13, Noes 0)

Assembly Floor (Ayes 79, Noes 0)

Assembly Judiciary Committee (Ayes 11, Noes 0)

Assembly Housing and Community Development Committee (Ayes 7, Noes 0)

**************

SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2017 - 2018 Regular

Bill No: Hearing Date: 6/6/2017

SUBJECT:

DIGEST: This bill requires a common interest development (CID) manager or management company to disclose certain information before entering into a management agreement with a homeowner’s association (HOA) and requires the HOA annual budget to contain specified information relating to charges for certain documents provided by the CID manager or management company.

ANALYSIS:

Existing law:

1. Requires a person who either provides or contemplates providing the services of a CID manager to an HOA to disclose the following to the board of directors of the HOA:
   1. Whether the CID manager has met specified requirements to be considered a certified CID manager.
   2. The name, address, and phone number of the association that certified the CID manager, the date the manager was certified, and the status of the certification.
   3. The location of his or her office.
   4. Prior to entering into or renewing a contract with an HOA, whether the fidelity insurance of the CID manager or his or her employer covers the current year’s operating and reserve funds of the HOA.
   5. Whether the CID manager possesses an active real estate license.
   6. A CID manager may provide a specified disclosure statement.
2. Requires an owner of a separate interest in a CID to provide specified documents (i.e. governing documents, restrictions on the use of the separate interest, special fees and assessments, initial list of defects, etc.) to a prospective purchaser of the separate interest.
3. Requires the HOA to provide, upon written request, the owner of a separate interest or any other recipient authorized by the owner, with a copy of specified documents (ie governing documents, restrictions on the use of the separate interest, special fees and assessments, initial list of defects, etc). The HOA may collect a reasonable fee from the seller based upon the HOAs actual cost for the procurement, preparation, reproduction, and delivery of the documents. The HOA shall provide a written or electronic estimate of the fees that will be assessed for providing the requested documents prior to processing the request on a specified “Charges for Documents Provided” disclosure form.
4. Requires the HOA to distribute an annual budget, and shall contain, among other things, the following:
   1. A pro forma operating budget.
   2. A summary of the HOA’s reserves.
   3. A summary of the reserve funding plan adopted by the board.
   4. A statement as to whether the board has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less.
5. Requires a prospective managing agent of a CID to provide a written statement to the HOA board as soon as practicable, but no more than 90 days before entering into a management agreement, including but not limited to:
   1. The names and business address of the owners or general partners of the managing agent.
   2. Whether or not any relevant licenses such as architectural design, construction, engineering, real estate, or accounting have been issued by the state and are currently held by the persons noted in (a) above.
   3. Whether or not any relevant professional certifications or designations such as architectural design, construction, engineering, real property management, or accounting are currently held by any of the persons specified in (a), including, but not limited to, a professional CID manager.

This bill:

1. Requires a person who either provides or contemplates providing the services of a CID manager to a HOA to also to disclose the following to the board of directors:
2. Whether or not the CID manager receives a referral fee or other monetary benefit from a third party distributing documents required as part of the HOA annual budget report.
3. An affirmative written acknowledgement that the disclosure provided to an HOA member or potential HOA member and all documents provided as part of an annual disclosure and annual HOA budget report are the property of the HOA and not its managing agent or the agent’s managing firm.
4. Amends the specific “Charges for Documents Provided” disclosure form for HOA documents to state that a seller may provide to a prospective purchaser, at no cost, current copies of specified HOA documents, such as governing documents, restrictions on the use of the separate interest, special fees and assessments, initial list of defects, etc. Additionally, a seller may request to purchase some or all HOA-related documents, but shall not be required to purchase all of the documents listed on the form.
5. Requires the HOA, as part of the annual budget, to provide a copy of the completed “Charges for Documents Provided” disclosure form. Completed means that the “Fee for Document” section of the form individually identifies the costs associated with providing each document listed on the form.
6. Requires a prospective managing agent of a CID to provide a written statement to the HOA board as soon as practicable, but no more than 90 days before entering into a management agreement, to also provide the following information:
   1. Disclose any business or company in which the CID manager or CID management firm has any ownership interests, profit-sharing arrangements, or other monetary incentives provided to the management firm or managing agent.
   2. Whether or not the CID manager or CID development management firm receives a referral fee or other monetary benefit from a third-party provider distributing HOA-related documents.
7. Requires a CID manager or CID management firm to disclose in writing any potential conflict of interest when presenting a bid for service to an HOA’s board. Defines “conflict of interest” as follows:
   1. Any referral fee or other monetary benefit that could be derived from a business or company providing products or services to the HOA.
   2. Any ownership interests in profit-sharing arrangements with service providers recommended to, or used by, the HOA.

COMMENTS:

1. Purpose of the bill. According to the author, this bill will, among other things, require HOAs to deliver, within the annual budget report, an itemized estimate of the fees that may be charged by a professional management company for documents necessary to facilitate a real estate transaction. To improve notice to HOA members, the bill requires HOAs to disclose to their members in the association’s annual report, which is mailed to every member of the HOA, a copy of a form showing all fees that may be charged by the management company or third party provider in connection with the delivery of documents required to facilitate the transfer of real property. This clarification to current law will help home owners prepare for costs associated with the transfer of real property by assuring all owners have advanced notice of the costs associated with document production prior to engaging in the escrow process. Management companies will also be required to disclose any conflicts of interest when initiating a management contract or presenting bids for service to the HOA board. This bill will help HOA owners prepare for costs associated with the transfer of real property and to assure that the HOA board has the tools necessary to make informed decisions regarding proposed service providers by requires these companies to disclose any financial/monetary benefits they will receive in exchange for recommending a service provider.
2. Unbundling HOA document reproduction fees. Under current law, the seller of an interest in a CID must provide certain documents to a prospective buyer, which must be obtained from the HOA. The author points to examples in which the CID management company or staff refused to provide individual documents requested and instead provided all HOA documents. The management also charged the seller for the reproduction of all those documents, which, according to the sponsor often amounts to between $300 and $1500. This bill would permit a seller to request individual documents and be charged for those documents only. Further, this bill would require the HOA to provide a copy of the “Charges of Documents Requested” form in the annual budget.
3. New CID manager disclosures. This bill also requires CID managers and management companies to disclose additional information, which identify any potential conflicts of interest. According to the sponsor, some management companies have financial interests in companies that they may recommend for use by the HOA, such as a document production company or a gardening company. This bill would require the CID management companies to disclose this information to the HOA so that the HOA is informed of any financial benefits the management company may enjoy.
4. Double-referral. This bill has been double-referred to the Senate Judiciary Committee.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

POSITIONS: (Communicated to the committee before noon on Wednesday,

May 31, 2017.)

SUPPORT:

California Association of Realtors (sponsor)

OPPOSITION:

None received.

-- END --

Date of Hearing: May 9, 2017

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 690

Author:(Quirk-Silva) – As Amended Ver:March 28, 2017

PROPOSED CONSENT

SUBJECT: COMMON INTEREST DEVELOPMENTS: MANAGERS: CONFLICTS OF INTEREST

KEY ISSUE: should existing law that prohibits the bundling of fees for disclosure documents obtained from a homeowner's association be revised to close a loophole that apparently allows professional management companies contracted by homeowners associations to bundle fees for those same documents when they are obtained from the management company?

SYNOPSIS

Specialized seller disclosures are required in sales of units within common interest developments (CIDs). Documents for such sales are typically purchased from the homeowners association (HOA) of the development, or from a professional management company contracted by the HOA. According to the California Association of Realtors, its members report that it has been an ongoing problem that their clients are charged excessive fees for these documents, despite laws enacted by the Legislature to prohibit the practice of bundling fees (i.e. charging for an entire package of documents-- and refusing to sell them separately-- when only one document in the package is needed to complete the transaction.)

This bill, sponsored by the Realtors, seeks to close a loophole in the law—arising from a 2007 court decision--that reportedly enables CID management companies to keep overcharging for bundled documents, contrary to state law disfavoring this practice. Among other things, this bill makes clear that management companies contracted to deliver these documents, on behalf of an HOA, are also required to provide the statutory “Document Disclosure Summary Form” established in Civil Code Section 4528, showing all fees that may be charged by the management company in connection with the delivery of the documents. The bill specifically provides that a seller may request to purchase some or all of the disclosure documents listed on the Document Disclosure Summary Form, but shall not be required to purchase all of the documents listed thereon. Finally, the bill also requires management companies to disclose any conflicts of interest when initiating a management contract or presenting bids for service to the HOA board, including the existence of any ownership interests, profit-sharing arrangements, or referral fees. According to proponents, these requirements will help unit owners to prepare for costs associated with the transfer of real property by assuring all owners have advanced notice of the costs associated with document production prior to engaging in the escrow process. There is no known opposition to the bill, and it was previously approved by the Assembly Housing Committee by a 7-0 vote.

SUMMARY: Applies certain rules to CID management companies for the provision of disclosure documents that currently apply to CIDs directly for the provision of the same documents. Specifically, this bill:

1. Requires that the form used to list all of the disclosure documents needed to complete a sale of real property, and the corresponding price of each document (also known as the "Document Disclosure Summary Form") includes the following statements:
2. A statement that the seller may provide to a prospective purchaser at no costs, current copies of any documents required to provide at the time of sale that are in the possession of the seller; and
3. A statement that the seller may request to purchase some of the documents but is not required to purchase all of the documents required to be provided to a buyer at the time of a sale of a separate interest.
4. Provides that a seller may request to purchase some or all of the disclosure documents listed on the Document Disclosure Summary Form, but shall not be required to purchase all of the documents listed thereon.
5. Requires homeowner associations to disclose in their annual budget information a copy of the completed Document Disclosure Summary Form that individually identifies the costs associated with providing each document listed on the form.
6. Requires the CID manager, CID management firm, or its contracted agent to facilitate the delivery of disclosure documents as listed on the Document Disclosure Summary Form, if the CID manager or CID management firm is contractually responsible for delivering those documents.
7. Requires a prospective managing agent of a CID, before entering into a management contract, to disclose to the CID board of directors the following information about potential conflicts of interest (in addition to other required disclosures):
   1. Any business or company in which the CID manager or CID management firm has any ownership interests, profit-sharing arrangements, or other monetary incentives provided to the management firm or managing agent.
   2. Whether or not the CID manager or CID management firm receives a referral fee or other monetary benefit from a third-party provider distributing documents pursuant to existing disclosure requirements.
8. Requires a CID manager or CID management firm to disclose to the CID board of directors the information listed in 5) above, in addition to all other required disclosures about potential conflicts of interest, as specified.
9. Requires a CID manager or CID management firm to disclose in writing any potential conflict of interest when presenting a bid for service to the CID board of directors. Defines “conflict of interest” as any referral fee or other monetary benefit that could be derived from a business or company providing products or services to the association, or, alternatively, any ownership interests or profit sharing arrangements with service providers recommended to, or used by the association.
10. Requires a CID manager or CID management firm to disclose if they are receiving a referral fee or other monetary benefit from a third-party provider distributing the documents that are required to be provided to an owner when he or she sells a separate interest.
11. Requires CID managers to provide an affirmative written acknowledgement each year that disclosure of specified documents to CID members or potential members are the property of the association, and not the CID manager or CID management firm.

EXISTING LAW:

1. Requires the owner of a separate interest to provide an extensive set of documents, as specified, to a prospective purchaser of the separate interest, as soon as practicable before the transfer of title or the execution of a real property sales contract. (Civil Code Section 4525. All further references are to this code unless otherwise stated.)
2. Requires the HOA, within 10 days of the mailing or delivery of a written request, to provide the owner of a separate interest, or any other recipient authorized by the owner, with a copy of all of the requested documents specified in Section 4525, above. (Section 4530 (a).)
3. Specifies the Document Disclosure Summary Form--a form for billing disclosures required by Section 4530, see 2) above, with the official title "Charges for Documents Provided as Required by Section 4525." (Section 4528.)
4. Permits the HOA to collect a reasonable fee from the seller based upon the association’s actual cost for the procurement, preparation, reproduction, and delivery of the documents requested pursuant to 2) above. (Section 4530 (b)(1).)
5. Provides that any documents not expressly required by Section 4525 to be provided to a prospective purchaser by the seller shall not be included in the document disclosure required by this section. Specifically prohibits the bundling of documents required to be provided pursuant to this section with other documents relating to the transaction. (Section 4530 (b)(5).)
6. Requires a seller to provide to the prospective purchaser, at no cost, current copies of any documents specified by Section 4525 that are in the possession of the seller. (Section 4530 (b)(6).)
7. Requires the fee for each document provided to the seller for the purpose of transmission to the prospective purchaser to be individually itemized in the statement required to be provided by the seller to the prospective purchaser. (Section 4530 (b)(7).)
8. Requires the HOA to distribute an annual budget report that includes an operating budget, summary of reserves, repairs, a statement if the board has determined or anticipates to levy any special assessments, any outstanding loans of the HOA, and a summary of the HOA insurance policies. (Section 5300.)
9. Requires that a person or firm that is acting as a CID manager provides specified disclosures to the board of directors of the HOA, including whether the prospective manager is certified, holds an active real estate license, and the manager’s name and address, among other things. (Section 5375.)
10. Requires a prospective manager to provide a written statement to the CID board containing specified information about the prospective CID manager, including names and business addresses of the owners or general partners of the managing agent; whether or not the manager has any relevant licenses such as architectural design, construction, real estate, engineering or accounting; and any relevant professional certifications or designations that are held by the manager. (Business & Professions Code Section 11504.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: This bill, sponsored by the California Association of Realtors (CAR), seeks to close a loophole in the law—arising from a 2007 court decision--that reportedly enables CID management companies to keep overcharging for bundled documents, contrary to state law disfavoring this practice. The bill seeks to ensure that existing law in this area is applied equally and that there is greater transparency in the charging of these disclosure document fees whenever a unit in a common interest development is sold.

Author's statement: According to the author:

Specialized seller disclosures are required in sales of units in CIDs. Documents for such sales are typically purchased from the homeowners association of the CID, or from a management company or subcontractor service company of the HOA or management company. For years, there have been complaints from Realtors involved in CID unit sales that their clients are being charged excessive fees for the disclosure documents required for the transfer of real property.

AB 690 will, among other things, require homeowner associations to deliver, within the annual budget report, an itemized estimate of fees that may be charged by a professional management company for documents necessary to facilitate a real estate transaction. [The bill] clarifies that sellers may request to purchase some or all of these documents, but shall not be required to purchase ALL of documents listed on this form.

Background on common interest developments, generally, and disclosure rules for the sale of property in CIDs. CIDs are multi-unit communities characterized by the following: (1) separate ownership of individual residential units coupled with an undivided interest in common property; (2) covenants, conditions, and restrictions (CC&Rs) that limit the use of both separate interests and common property; and (3) management of common property and enforcement of restrictions by a homeowner's association (HOA). An increasing proportion of Californians now live in CID's—by some accounts between one-fourth and one-third of all Californians—and it is likely CIDs represent the majority of new housing being built in the state. CIDs are governed by volunteer boards of directors who are elected by the members of the HOA and who are responsible for interpreting the governing documents and state law.

Under the Davis-Stirling Act, which sets forth general rules governing common interest developments, each individual CID is subject to rules and regulations set forth by the HOA’s “governing documents." These governing documents include the recorded declaration and any other documents, such as bylaws, operating rules of the association, or articles of incorporation that govern the operation of the association. The governing documents of CIDs typically contain many restrictions over aspects of use, appearance, and transferability of interest of the property.

An owner in a CID is required to provide a prospective purchaser with specified documents listed in Civil Code Section 4525 as soon as practicable before the transfer of title or the execution of a real property sales contract to a prospective buyer. Sellers who do not have the necessary current documents to provide to a prospective buyer can request the documents from the HOA, which then has 10 days to provide copies to the seller. In some CIDs, the HOA contracts with a management company or other agent to collect the documents, reproduce them, and provide them to the seller. Existing law provides the HOA may only charge a reasonable fee based on the actual cost to procure, prepare, and reproduce the items for the owner.

Previous legislation to prevent the "bundling" of fees for necessary documents has not been entirely successful. In response to the practice of third party vendors charging excessive document fees to CID purchasers and sellers, the Legislature enacted AB 771 (Ch. 206, Stats. 2011) which sought to prohibit the "bundling" of document fees, and to provide more specific document delivery and disclosure standards for condominium sales. The bill also created a statutorily prescribed standard form for use in real estate transactions, working collaboratively with industry stakeholders, to limit excessive charges for information required by Civil Code Section 4530.

In 2014, the Legislature enacted AB 2430 (Ch. 185, Stats. 2014) which sought to close loopholes that permitted abuses of the previous legislation. AB 2430 specifically amended the statutorily required disclosure form to clearly display the fees for each document required for the transaction, and to affirmatively state that it is the responsibility of the seller to provide the documents. Additionally, like AB 771, the legislation specifically sought to prohibit bundling of CID documents by an HOA, and allowed the seller to provide to the buyer, at no cost, any of the required documents in the seller's possession.

According to CAR, the sponsor of this bill, CID management companies continue the practice of "bundling" fees by taking advantage of a loophole in current law arising from a court case known as Berryman v. Merit Property Management (2007) 152 Cal.App.4th 1544. In that case, the appellate court held that state law limiting fees for CID documents applied directly to homeowner associations, but not management companies they contract with. As a result, HOA management companies have found a way to effectively side-step the "actual cost" limit on charges for the reports by out-sourcing production of the required records to management companies or third party companies who then pass the charges from those companies to the sellers as "actual costs." As a result, CAR contends:

Many management companies have continued these abusive practices asserting that the statute only applies to the HOA and not to the management company. In some cases, sellers who have needed to purchase only one document have been required to purchase the entire packet, even though state statute clearly states that sellers can transmit documents in their possession to the purchaser of real property and purchase only the documents needed to facilitate the transfer. Every dollar added to escrow expenses adversely affects sellers and can result in charges in excess of $400 to $1,000, and in some cases more, that could otherwise be used toward the purchase of their next home.

This bill extends existing HOA disclosure requirements to management companies that contract with HOAs to provide documents. In order to further address the problem of "bundling" by CID management companies, this bill simply applies the same rules and standards required for HOAs providing document fee disclosures to its members to the management companies contracted to provide documents required by Civil Code Section 4530. This bill also makes clear that management companies contracted to deliver these documents, on behalf of an HOA, are also required to provide the statutory Document Disclosure Summary Form established in Civil Code Section 4528, showing all fees that may be charged by the management company or third party provider in connection with the delivery of documents required to facilitate the transfer of real property located within a CID. According to proponents, this will help unit owners to prepare for costs associated with the transfer of real property by assuring all owners have advanced notice of the costs associated with document production prior to engaging in the escrow process.

The bill requires that this Summary Form includes a statement that the seller may provide to a prospective purchaser at no costs, current copies of any documents required to be provided at the time of sale that are in the possession of the seller; and a statement that the seller may request to purchase some of the documents but is not required to purchase all of the documents required to be provided to a buyer at the time of a sale of a separate interest. In addition, the bill requires CID managers to provide an affirmative written acknowledgement each year that these association documents are the property of the association, and not the CID manager or CID management firm.

Disclosure of potential conflicts of interest. Finally, the bill also requires management companies to disclose any conflicts of interest when initiating a management contract or presenting bids for service to the HOA board, including the existence of any ownership interests, profit-sharing arrangements, or referral fees. According to the author, this is intended to ensure that the HOA board of directors has the tools necessary to make informed decisions regarding proposed service providers by requiring these management companies to disclose any financial or monetary benefits they will receive in exchange for recommending a service provider.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of Realtors (sponsor)

California Professional Association of Specialty Contractors

Opposition

None on file

Analysis Prepared by: Anthony Lew / JUD. / (916) 319-2334

Date of Hearing: April 5, 2017

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 690 (

Author:Quirk-Silva) – As Amended Ver:March 28, 2017

SUBJECT: Common interest developments: managers: conflicts of interest

SUMMARY: Requires a manager or management firm of a common interest development (CID) to disclose certain information before entering into a management agreement and requires a CID homeowners association’s (HOA) annual budget report to contain specified information relating to charges for certain documents provided by the manager or management firm. Specifically, this bill:

1. Clarifies that at the time of sale a manager or management firm of a CID is required to disclose an itemized list of the costs associated with providing each of the required sales documents.
2. Requires managers to provide an affirmative written acknowledgement each year that specified documents provided to the manager are the property of the HOA and not the manager.
3. Requires HOAs to disclose in their annual budget information the charges for copies of documents required to be provided to an owner by the association when a separate interest is sold.
4. Requires the manager or the management firm’s agent to facilitate the delivery of documents containing specified information if the manager or firm is contractually responsible for delivering those documents.
5. Requires managers or management firms to disclose if they are receiving a referral fee or other monetary benefit from a third-party provider distributing the documents that are required to be provided to an owner when he or she sells a separate interest.
6. Requires that the form used for disclosure of document prices includes the following:
7. A statement that the seller may provide to a prospective purchaser at no costs, current copies of any documents required to provide at the time of sale that are in the possession of the seller; and
8. A statement that the seller may request to purchase some of the documents but is not required to purchase all of the documents required to be provided to a buyer at the time of a sale of a separate interest.
9. Requires a CID manager or firm to disclose in writing any potential conflict of interest when presenting a bid for service to an HOA’s board of directors.
   1. Defines “conflict of interest” as any referral fee or other monetary benefit that could be derived from a business or company providing products or services to the association, or any ownership interests or profit sharing arrangements with service providers recommended to, or used by the HOA.

EXISTING LAW:

1. Requires the HOA to distribute an annual budget report 30 to 90 days before the end of its fiscal year. This report must include an operating budget, summary of reserves, repairs, a statement if the board has determined or anticipates to levy any special assessments, any outstanding loans of the HOA, and a summary of the HOA insurance policies.
2. Requires that a person or firm that is acting as a CID manager provides specified disclosures to the board of directors of the HOA, including whether the prospective manager is certified, holds an active real estate license, and the manager’s name and address.
3. Requires a prospective manager to provide a written statement to the board containing specified information about the prospective manager including names and business addresses of the owners or general partners of the managing agent, whether or not the manager has any relevant licenses such as architectural design, construction, real estate, engineering or accounting, and any relevant professional certifications or designations are held by the manager.

FISCAL EFFECT: None

COMMENTS:

There are over 50,220 CIDs in the state that comprise over 4.8 million housing units, or approximately one quarter of the state's housing stock. CIDs include condominiums, community apartment projects, housing cooperatives, and planned unit developments. They are characterized by a separate ownership of dwelling space coupled with an undivided interest in a common property, restricted by covenants and conditions that limit the use of common area and the separate ownership interests, and the management of common property and enforcement of restrictions by a HOA. CIDs are governed by the Davis Stirling Act (the Act) as well as the governing documents of the HOA, including bylaws, declaration, and operating rules. CIDs are run by volunteer boards of directors (boards), the members of which may have little or no experience managing real property or governing a nonprofit HOA and who must interpret the complex laws regulating CIDs. Boards must not only interpret the law, but enforce the restrictions and rules imposed by the governing documents and state law.

An owner in a CID is required to provide a prospective purchaser with specified documents listed in Civil Code Section 4525 as soon as practicable before the transfer of title or the execution of a real property sales contract to a prospective buyer. Sellers, who do not have current documents to provide to a prospective buyer, can request the documents from the HOA which has 10 days to provide copies to the seller. In some CIDs, the HOA contracts with a management company or other agent to collect the documents, reproduce them, and provide them to the seller. Existing law provides the HOA may only charge a reasonable fee based on the actual cost to procure, prepare, and reproduce the items for the owner.

In 2007 an appellate court ruled in Berryman v. Merit Property Management that an agent of the HOA was not subject to the provision requiring that the HOA charge only the actual cost to procure, prepare, and reproduce the documents for the owner. The court determined that although an HOA is prohibited from charging above the actual costs and making a profit, a managing agent is not.

In 2011, the California Association of Realtors (CAR) sponsored AB 771 (Butler) Chapter 206, Statutes of 2011, which amended the statute to only permit HOAs to charge fees for the documents required to facilitate the transfer of real property. The goal was to prohibit the “bundling” of fees for other documents with fees for the required documents. The bill also created a statutory form, which must accompany the documents, detailing the documents that are required.

In 2014, CAR sponsored AB 2430 (Maienschein) Chapter 185, Statutes of 2014, which was intended to close loop holes in CID law that permitted abuses of the previous legislation. AB 2430 specifically required the form to state the fees for the each required document and that it is the responsibility of the seller to provide the documents. Additionally, AB 2430 specifically sought, like AB 711, to prohibit bundling of CID documents by an HOA, and permits that a seller may provide, at no cost, any of the required documents possessed by the seller to the purchaser.

Purpose of this bill: According to the author, despite previous efforts to provide transparency regarding the cost of documents that a seller can request from an HOA, abuses still occur. In some instances, management companies assert that the statue only applies to the HOA and not the management company. AB 690 is an attempt to further regulate management companies and third-party vendors who provide documents to owners as part of the sale of a home in a CID. AB 690 further clarifies existing law that an owner in a CID can provide documents directly to a buyer and is not required to purchase all documents that they are required to provide a buyer from the managing agent or the HOA. In addition, the bill requires an HOA to include in its annual budget disclosure a copy of the list of documents that a seller can request from an HOA when selling their home and the cost of each document. AB 690 requires that a CID manager or management firm disclose to the HOA if it is receiving a referral fee or other monetary benefit from a third-party vendor who is providing documents to a seller. A CID manager is also required to disclose any conflict of interest when presenting a bid for service from an outside contractor.

Double-referred: This bill was also referred to the Committee on Judiciary where it will be heard should it pass out of this committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of Realtors (sponsor)

California Professional Association of Specialty Contractors

Opposition

None received

Analysis Prepared by: Lisa Engel and Peter Stevens / H. & C.D. /916-319-2085