UNFINISHED BUSINESS  

Bill No: SB 323

Author: Wieckowski (D)

Amended: 9/9/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-0, 4/2/19

AYES: Jackson, Allen, Caballero, Monning, Stern, Umberg, Wieckowski

NO VOTE RECORDED: Borgeas

SENATE HOUSING COMMITTEE: 8-1, 4/30/19

AYES: Wiener, Caballero, Durazo, McGuire, Roth, Skinner, Umberg, Wieckowski

NOES: Morrell

NO VOTE RECORDED: Bates, Moorlach

SENATE FLOOR: 28-8, 5/29/19

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NOES: Bates, Grove, Jones, Moorlach, Morrell, Nielsen, Stone, Wilk

NO VOTE RECORDED: Borgeas, Chang

ASSEMBLY FLOOR: 41-24

(ROLL CALL NOT AVAILABLE)

SUBJECT: Common interest developments: elections

SOURCE: Center for California Homeowner Association Law

DIGEST:

This bill enacts a series of reforms to the laws governing board of director elections in common interest developments, commonly referred to as homeowners associations or HOAs. In broad strokes, the reforms seek to increase the regularity, fairness, formality, and transparency associated with such elections.

Assembly Amendments

(1) allow disqualification of board candidates based on failure to pay special assessments; (2) allow a developer to nominate a nonmember candidate consistent with the voting power of the developer, as defined; (3) permit, but do not require disqualification of board candidates if the HOA becomes aware that the candidate has a criminal conviction that would put the HOA’s fidelity bond insurance at risk; and (4) address chaptering out issues.

ANALYSIS:

Existing law:

1. Establishes, within the Davis-Stirling Common Interest Development Act, rules and regulations governing the operation of a residential common interest development (CID) and the respective rights and duties of an HOA and its members. (Civ. Code § 4000 et seq.)
2. Requires association elections regarding assessments legally requiring a vote, election and removal of directors, amendments to the governing documents, or the grant of exclusive use of common area to be held by secret ballot in accordance with specified procedures. (Civ. Code § 5100 et seq.)

This bill:

1. Requires an HOA to hold elections for a seat on the board of directors at the end of each expiring term and in any event at least once every four years.
2. Prohibits an HOA from amending its elections operating rules within 90 days of an election.
3. Requires an HOA to disqualify a nominee from becoming a candidate for the board of directors if the nominee is not a member of the association at the time of the nomination, except that a developer may make a nomination of a nonmember candidate consistent with the voting power of the developer and a legal entity that is not a natural person may appoint a natural person to be a member stand-in for that legal entity.
4. Sets forth the following grounds on which an HOA may disqualify a nominee from becoming a candidate for the board of directors, provided that the rule is part of the association’s by-laws or is part of the HOA’s elections operating rules:
   1. all of the following are true:
      1. the nominee is not current on the payment of regular and special assessments, as defined;
      2. the nominee has been given the opportunity to engage in an internal dispute resolution process, as specified;
      3. the association also requires an incumbent to be current on the payment of regular assessments; and
      4. none of the following exceptions apply:
         1. the nominee paid the regular assessments under protest;
         2. the nominee has entered into a payment plan; or
         3. the nominee has not been provided with the opportunity to engage in internal dispute resolution, as specified;
   2. the nominee, if elected, would cause a violation of an association by-law prohibiting two or more joint owners of the same HOA parcel from serving on the board simultaneously;
   3. the nominee has been a member of the association for less than one year; or
   4. the HOA becomes aware that the nominee has a past criminal conviction that would, if the person was elected, prevent the HOA from obtaining or retaining fidelity bond coverage.
5. Provides that an HOA’s election rules must require:
   1. retention, as association elections materials, of:
      1. a voter list with name, parcel number, and voting power; and
      2. a candidate registration list;
   2. the HOA to permit members to verify the accuracy of their individual information on both lists at least 30 days before the ballots are distributed;
   3. correction of any identified errors in the voter or candidate lists within two business days.
6. Requires an HOA to provide general notice of all of the following, unless individual notice is requested, on the following timelines:
   1. at least 30 days before any deadline for submitting a nomination:
      1. the procedure and deadline for submitting a nomination at least 30 days before the deadline for submitting a nomination.
   2. at least 30 days before distribution of ballots:
      1. the date and time by which, and the physical address where ballots are to be returned by mail or handed to the inspector;
      2. the date, time, and location of the meeting at which ballots will be counted; and
      3. the list of all candidates names that will appear on the ballot.
7. Requires an HOA’s election operating rules to:
   1. prohibit the denial of a ballot to a member for any reason other than not being a member at the time when ballots are distributed;
   2. prohibit the denial of a ballot to a person with power of attorney for a member;
   3. require the ballot of a person with power of attorney for a member to be counted if returned in a timely manner; and
   4. require the inspector or inspectors of elections to deliver to each member, at least 30 days before an election and by individual delivery or posting to an Internet Web site in the specified fashion, both of the following documents:
      1. a copy of the election operating rules; and
      2. the ballot or ballots.
8. Prohibits an HOA’s election rules from permitting any person, business, or subdivision of a business entity to serve as the inspector of elections if currently employed or under contract with the HOA for any compensable services other than to serve as an inspector of elections.
9. Adds signed voter envelopes, voter list, proxies, and a candidate registration list to the enumerated items that shall be in the custody of the inspector or inspectors of elections or at a location designated by the inspector or inspectors until after the tabulation of the vote and until the time allowed for challenging the election has expired.
10. Provides that a cause of action for a violation of member elections may be brought within one year of the date that the inspector or inspectors notify the HOA board and membership of the election results or the cause of action accrues, whichever is later.
11. Requires a court to void the results of an election if the member challenging the election shows, by a preponderance of the evidence, that the election procedures were not followed, unless the association shows, by a preponderance of the evidence, that its noncompliance with this article or the election operating rules did not affect the results of the election.
12. Requires a court review a cause of action brought under 11) above, to state its findings in writing as part of the record.
13. Requires a member to be awarded court costs and reasonable attorney’s fees incurred for consulting an attorney in connection with this civil action if the member prevails in a civil action in small claims court.
14. Permits a cause of action alleging failing to comply with association election laws or rules in either superior court or, if the amount of the demand does not exceed the jurisdictional amount of the small claims court, in small claims court.
15. Defines “association election materials” to mean returned ballots, signed voter envelopes, the voter list of names, parcel numbers, and voters to whom ballots were sent, proxies, and the candidate registration list, and adds such materials to the enumerated “association records” to which members are entitled access under specified procedures.
16. Provides that signed voter envelopes may only be inspected, but not copied.
17. Prohibits an HOA from filing a civil action regarding a dispute in which a member has requested internal dispute resolution unless the association has engaged in specified internal dispute resolution procedures in good faith.
18. Contains chaptering out provisions related to SB 754 (Moorlach).

Background

CIDs, often referred to as HOAs, are self-governing groups of dwellings that share common spaces and amenities. They come in a wide variety of physical layouts: condominium complexes, apartment buildings, and neighborhoods of detached, single-family residences, for example. Some consist of thousands of units. Others are made up of just a handful. Dwellings within common housing developments currently account for approximately a quarter of the state’s overall housing stock, meaning that the laws governing such developments have a large impact on the population. In California, HOAs are primarily governed by the Davis-Stirling Act. (Civ. Code §§ 4000-6150.)

The Davis-Stirling Act sets forth a system for HOA self-governance. The owners of the separate properties within the HOA are the members of the HOA. Association members vote for the board of directors of the association that oversees operation of the HOA.

The board manages the HOA, frequently by hiring an individual or entity – the property manager – to do so on its behalf. The board determines the annual assessments – much like taxes – that members must pay in order to cover communal expenses. The board enforces the community rules and can propose and make changes to those rules. If members do not pay their assessments in full or on time, or if members violate the community rules, the board has the power to fine the members, place liens on the offending member’s property, and, if ultimately necessary, the power to foreclose. This array of responsibilities and powers has led multiple courts to observe that HOAs function in many ways almost “as a second municipal government, regulating many aspects of [the homeowners’] daily lives.” (Villa Milano Homeowners Ass’n v. Il Davorge (2000) 84 Cal.App.4th 819, 836 [citations omitted].)

Much like municipal governments, HOAs use elections to choose members to serve on the association’s board of directors. The Davis-Stirling Act sets forth certain basic ground rules for these elections. (Civ. Code § 5100 et seq.) The HOAs conduct the elections through a paper and mail based balloting system that closely resembles California’s vote-by-mail process. (Civ. Code § 5115.) Beyond these basic ground rules, however, the Davis-Stirling Act leaves many aspects of the association elections process to the discretion of the association, including the board itself. The proponents of this bill assert that incumbent boards have seized upon this discretion to undermine the democratic function of the elections by, among other things, disqualifying members from running for the board, limiting members’ ability to vote, and rigging the balloting procedures. To prevent such manipulation of the process, this bill enacts a series of reforms to the laws governing HOA elections. Of particular note, this bill: (1) requires that elections take place at regular intervals; (2) prohibits HOAs from disqualifying members from running for the board of directors except on narrow, specified grounds; and (3) restricts HOAs from disenfranchising members.

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

SUPPORT: (Verified 9/12/19)

Center for California Homeowner Association Law (source)

American Civil Liberties Union of California

California Association of Retired Americans

Greater Sacramento Urban League

Non-Profit Housing Association of Northern California

Schiffer & Buus

OPPOSITION: (Verified 9/12/19)

California Association of Community Managers

Community Associations Institute - California Legislative Action Committee

Lake Wildwood Association

28 individuals

ARGUMENTS IN SUPPORT: According to the author:

SB 323 will strengthen the democratic governance in California’s over 52,000 homeowner’s associations.

Unfortunately, far too many HOA boards have used arbitrary & unjust rules to maintain their power and control over the association, excluding and disenfranchising other residents who seek to challenge them. Boards manipulate elections by failing to notice an election, failing to deliver ballots to all residents, throwing out valid ballots, and denying access to ballot counting. Sometimes they don’t even hold elections at all.

SB 323 ensures that those holding positions of power over other residents in HOAs properly establish elections rules and adhere to them.

As sponsor of the bill, the Center for California Homeowner Association Law writes:

The California Appellate courts have ruled repeatedly that associations parallel in almost every way the powers, duties, and responsibilities of local government. The original legislation to create integrity in association elections built on these opinions by stating that “it is the intent of the Legislature to ensure that democratic principles and practices are in place with respect to the governance of common interest developments.” Nowhere in association governance are democratic principles more vital than during elections […]

Unfortunately, since their enactment, the California laws governing association elections have been ignored or violated or undermined […]. SB323 aims to address these abuses.

Elections in California’s 52,000 associations are no small matter. We think SB323 makes it harder for associations to manipulate HOA elections and goes a long way toward restoring confidence in this essential democratic process.

ARGUMENTS IN OPPOSITION: In opposition to the bill, the Community Associations Institute - California Legislative Action Committee (CAI-CLAC) writes:

As written, SB 323 threatens the privacy of residents, will drastically increase costs faced by these not-for-profit entities and suppress voter participation. […] CAI-CLAC supports fair and open elections. However, absent any evidence current law is insufficient to protect the interests of our members, we cannot support the changes proposed […].

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

9/13/19 21:43:50

**** END ****

SENATE THIRD READING

STR Bill Id:SB 323

Author:(Wieckowski)

As Amended Ver:September 9, 2019

Majority vote

SUMMARY:

Makes various changes to the election procedures in common interest developments (CIDs).

Major Provisions

1. Require elections in CIDs to be conducted at a minimum of every four years.
2. Requires a homeowners association (HOA) to disqualify a person from a nomination as a candidate for the board of directors for or not being a member of the HOA at the time of the nomination, with the following exceptions:
   1. A developer may nominate a nonmember candidate consistent with the voting power of the developer; and
   2. A separate interest is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of voting in an election.
3. Allows a HOA through its bylaws or election operating rules to disqualify a person from nomination as a candidate if any of the following are true:
   1. If a nominee is not current in the payment of assessments. Allows an HOA to require a sitting director to be current on payment of assessments;
   2. A person who if elected would be serving on the board with another person who holds a joint ownership in the same separate interest as the person or person nominated or an incumbent director;
   3. If the person has been a member of the HOA for less than a year; and,
   4. A person for not paying assessments, but may not disqualify a nominee for nonpayment of fines, fines renamed as assessments, collection charges, late charges, or costs levied by a third party. Provides that a person may be not disqualified for failure to be current in payment of assessments if either of the following circumstances are true:
      1. The person has paid the assessment under protest;
      2. The person entered into a payment plan; and,
      3. Prohibits an HOA from disqualifying a person who has not been offered an opportunity to engage in internal dispute resolution.

COMMENTS:

HOAs are required to adopt operating rules that govern the elections including qualifications for candidates for the board of directors. This bill would require an HOA to disqualify a candidate for the board if he or she is not a member of the HOA. HOAs would not be allowed to disqualify a candidate who has owned a home in the CID for less than one year. An HOA could also disqualify a person who is delinquent on assessments, except that the person has to have been offered a payment plan, the person may pay the assessment under protest, and the person has to be given an opportunity to participate internal dispute resolution. Board members could also not serve on the board if delinquent on assessments. Assessments are payments made by the membership of the HOA to pay for the basic operations of the CID. This bill would only allow an HOA to prevent a candidate or member of the board from serving on the board if he or she is delinquent on assessments.

An HOA is required to retain the ballots after an election in case of a potential challenge to the election. This bill would require the HOA to also retain the signed voter envelopes, the voter list of names, parcel numbers, and voters to whom ballots were to be sent, proxies, and the candidate registration list. Members can review and make copies of these materials. The bill explicitly prohibits copying the signed returned ballot.

HOAs are required to retain an inspector or inspector of election to receive and count the ballots. The inspector of election must be an independent third party, including a member who is not a candidate, board member, or related to either. The inspector cannot be an HOA employee or entity the HOA contracts with unless the operating rules of the HOA expressly authorizing by the HOA. This bill would eliminated the authority of the HOA to adopt a rule allowing an employee or contracted entity to serve as inspector of elections. The committee may wish to consider if this would undermined the self-governance of the HOA

According to the Author:

According to the author, "SB 323 is needed to ensure voting rights of members living in HOAs are preserved and not treated as a mere privilege and available for use as an enforcement tool. If HOA boards can strip away voting rights of perceived "problem residents," who may be seeking to unseat them from their position of power, board members can act with frivolity and impunity in silencing dissent. Just as we defend voting rights in local, state, and national elections, we must also do the same in these HOA elections, whose outcomes ultimately control the day-to-day personal lives of the nearly 1:4 people living in a common interest development in California."

Arguments in Support:

Supporters argue that despite the extensive existing requirements for conducting elections in CIDs improvements are needed. These improvements include requiring access to inspect election materials, preventing HOAs from establishing qualifications for members to run for the board of directors, and adding additional notice requirements.

Arguments in Opposition:

Opponents argue this bill prohibits an HOA from establishing qualifications for candidates for the Board of Directors. They also raise concerns with the increase the time necessary to conduct an election by adding a requirement that members receive a list of candidates 30 days prior to ballots being distributed.

FISCAL COMMENTS:

None. This bill is keyed non-fiscal by the Legislative Counsel.

VOTES:

SENATE FLOOR: 28-8-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Bates, Grove, Jones, Moorlach, Morrell, Nielsen, Stone, Wilk

ABS, ABST OR NV: Borgeas, Chang

ASM HOUSING AND COMMUNITY DEVELOPMENT: 5-1-2

YES: Chiu, Gabriel, Gloria, Limón, Maienschein

NO: Kiley

ABS, ABST OR NV: Diep, Quirk-Silva

ASM JUDICIARY: 8-4-0

YES: Mark Stone, Chau, Chiu, Gonzalez, Holden, Kalra, Maienschein, Reyes

NO: Gallagher, Kiley, Obernolte, Petrie-Norris

UPDATED:

VERSION: September 9, 2019

CONSULTANT: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0002217

SENATE THIRD READING

STR Bill Id:SB 323

Author:(Wieckowski)

As Amended Ver:September 5, 2019

Majority vote

SUMMARY:

Makes various changes to the election procedures in common interest developments (CIDs).

Major Provisions

1. Require elections in CIDs to be conducted at a minimum of every four years.
2. Requires an HOA to disqualify a person from a nomination as a candidate for the board of directors for or not being a member of the homeowners association (HOA) at the time of the nomination, with the following exceptions:
   1. A developer may nominate a nonmember candidate consistent with the voting power of the developer; and
   2. A separate interest is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of voting in an election.
3. Allows a HOA through its bylaws or election operating rules to disqualify a person from nomination as a candidate if any of the following are true:
4. If a nominee is not current in the payment of assessments. Allows an HOA to require a sitting director to be current on payment of assessments;
5. A person who if elected would be serving on the board with another person who holds a joint ownership in the same separate interest as the person or person nominated or an incumbent director;
6. If the person has been a member of the HOA for less than a year; and,
7. A person for not paying assessments, but may not disqualify a nominee for nonpayment of fines, fines renamed as assessments, collection charges, late charges, or costs levied by a third party. Provides that a person may be not disqualified for failure to be current in payment of assessments if either of the following circumstances are true:
   • 1. The person has paid the assessment under protest;
     2. The person entered into a payment plan; and,
     3. Prohibits an HOA from disqualifying a person who has not been offered an opportunity to engage in internal dispute resolution.

COMMENTS:

HOAs are required to adopt operating rules that govern the elections including qualifications for candidates for the board of directors. This bill would require an HOA to disqualify a candidate for the board if he or she is not a member of the HOA. HOAs would not be allowed to disqualify a candidate who has owned a home in the CID for less than one year. An HOA could also disqualify a person who is delinquent on assessments, except that the person has to have been offered a payment plan, the person may pay the assessment under protest, and the person has to be given an opportunity to participate internal dispute resolution. Board members could also not serve on the board if delinquent on assessments. Assessments are payments made by the membership of the HOA to pay for the basic operations of the CID. This bill would only allow an HOA to prevent a candidate or member of the board from serving on the board if he or she is delinquent on assessments.

An HOA is required to retain the ballots after an election in case of a potential challenge to the election. This bill would require the HOA to also retain the signed voter envelopes, the voter list of names, parcel numbers, and voters to whom ballots were to be sent, proxies, and the candidate registration list. Members can review and make copies of these materials. The bill explicitly prohibits copying the signed returned ballot.

HOAs are required to retain an inspector or inspector of election to receive and count the ballots. The inspector of election must be an independent third party, including a member who is not a candidate, board member, or related to either. The inspector cannot be an HOA employee or entity the HOA contracts with unless the operating rules of the HOA expressly authorizing by the HOA. This bill would eliminated the authority of the HOA to adopt a rule allowing an employee or contracted entity to serve as inspector of elections. The committee may wish to consider if this would undermined the self-governance of the HOA.

According to the Author:

According to the author, "SB 323 is needed to ensure voting rights of members living in HOAs are preserved and not treated as a mere privilege and available for use as an enforcement tool. If HOA boards can strip away voting rights of perceived "problem residents," who may be seeking to unseat them from their position of power, board members can act with frivolity and impunity in silencing dissent. Just as we defend voting rights in local, state, and national elections, we must also do the same in these HOA elections, whose outcomes ultimately control the day-to-day personal lives of the nearly 1:4 people living in a common interest development in California."

Arguments in Support:

Supporters argue that despite the extensive existing requirements for conducting elections in CIDs improvements are needed. These improvements include requiring access to inspect election materials, preventing HOAs from establishing qualifications for members to run for the board of directors, and adding additional notice requirements.

Arguments in Opposition:

Opponents argue this bill prohibits an HOA from establishing qualifications for candidates for the Board of Directors. They also raise concerns with the increase the time necessary to conduct an election by adding a requirement that members receive a list of candidates 30 days prior to ballots being distributed.

FISCAL COMMENTS:

None. This bill is keyed non-fiscal by the Legislative Counsel.

VOTES:

SENATE FLOOR: 28-8-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Bates, Grove, Jones, Moorlach, Morrell, Nielsen, Stone, Wilk

ABS, ABST OR NV: Borgeas, Chang

ASM HOUSING AND COMMUNITY DEVELOPMENT: 5-1-2

YES: Chiu, Gabriel, Gloria, Limón, Maienschein

NO: Kiley

ABS, ABST OR NV: Diep, Quirk-Silva

ASM JUDICIARY: 8-4-0

YES: Mark Stone, Chau, Chiu, Gonzalez, Holden, Kalra, Maienschein, Reyes

NO: Gallagher, Kiley, Obernolte, Petrie-Norris

UPDATED:

VERSION: September 5, 2019

CONSULTANT: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0001920

SENATE THIRD READING

STR Bill Id:SB 323

Author:(Wieckowski)

As Amended Ver:July 11, 2019

Majority vote

SUMMARY:

Makes various changes to the election procedures in common interest developments (CIDs).

Major Provisions

1. Require elections in CIDs to be conducted at a minimum of every four years.
2. Requires an homeowners association (HOA) to disqualify a person from a nomination as a candidate for the board of directors for or not being a member of the HOA at the time of the nomination, with the following exceptions:
   1. A developer may nominate a nonmember candidate consistent with the voting power of the developer; and
   2. A separate interest is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of voting in an election.
3. Allows a HOA through its bylaws or election operating rules to disqualify a person from nomination as a candidate if any of the following are true:
4. If a nominee is not current in the payment of assessments. Allows an HOA to require a sitting director to be current on payment of assessments;
5. If a person who if elected would be serving on the board with another person who holds a joint ownership in the same separate interest as the person or person nominated or an incumbent director;
6. If the person has been a member of the HOA for less than a year; and,
7. A person for not paying assessments, but may not disqualify a nominee for nonpayment of fines, fines renamed as assessments, collection charges, late charges, or costs levied by a third party. Provides that a person may be not disqualified for failure to be current in payment of assessments if either of the following circumstances are true:
8. The person has paid the assessment under protest;
9. The person entered into a payment plan; and,
10. Prohibits an HOA from disqualifying a person who has not been offered an opportunity to engage in internal dispute resolution.

COMMENTS:

HOAs are required to adopt operating rules that govern the elections including qualifications for candidates for the board of directors. This bill would require an HOA to disqualify a candidate for the board if he or she is not a member of the HOA. HOAs would not be allowed to disqualify a candidate who has owned a home in the CID for less than one year. An HOA could also disqualify a person who is delinquent on assessments, except that the person has to have been offered a payment plan, the person may pay the assessment under protest, and the person has to be given an opportunity to participate internal dispute resolution. Board members could also not serve on the board if delinquent on assessments. Assessments are payments made by the membership of the HOA to pay for the basic operations of the CID. This bill would only allow an HOA to prevent a candidate or member of the board from serving on the board if he or she is delinquent on assessments.

An HOA is required to retain the ballots after an election in case of a potential challenge to the election. This bill would require the HOA to also retain the signed voter envelopes, the voter list of names, parcel numbers, and voters to whom ballots were to be sent, proxies, and the candidate registration list. Members can review and make copies of these materials. The bill explicitly prohibits copying the signed returned ballot.

HOAs are required to retain an inspector or inspector of election to receive and count the ballots. The inspector of election must be an independent third party, including a member who is not a candidate, board member, or related to either. The inspector cannot be an HOA employee or entity the HOA contracts with unless the operating rules of the HOA expressly authorizing by the HOA. This bill would eliminated the authority of the HOA to adopt a rule allowing an employee or contracted entity to serve as inspector of elections. The committee may wish to consider if this would undermined the self-governance of the HOA.

According to the Author:

According to the author, "SB 323 is needed to ensure voting rights of members living in HOAs are preserved and not treated as a mere privilege and available for use as an enforcement tool. If HOA boards can strip away voting rights of perceived "problem residents," who may be seeking to unseat them from their position of power, board members can act with frivolity and impunity in silencing dissent. Just as we defend voting rights in local, state, and national elections, we must also do the same in these HOA elections, whose outcomes ultimately control the day-to-day personal lives of the nearly 1:4 people living in a common interest development in California."

Arguments in Support:

Supporters argue that despite the extensive existing requirements for conducting elections in CIDs improvements are needed. These improvements include requiring access to inspect election materials, preventing HOAs from establishing qualifications for members to run for the board of directors, and adding additional notice requirements.

Arguments in Opposition:

Opponents argue this bill prohibits an HOA from establishing qualifications for candidates for the Board of Directors. They also raise concerns with the increase the time necessary to conduct an election by adding a requirement that members receive a list of candidates 30 days prior to ballots being distributed.

FISCAL COMMENTS:

None. This bill is keyed non-fiscal by the Legislative Counsel.

VOTES:

SENATE FLOOR: 28-8-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Bates, Grove, Jones, Moorlach, Morrell, Nielsen, Stone, Wilk

ABS, ABST OR NV: Borgeas, Chang

ASM HOUSING AND COMMUNITY DEVELOPMENT: 5-1-2

YES: Chiu, Gabriel, Gloria, Limón, Maienschein

NO: Kiley

ABS, ABST OR NV: Diep, Quirk-Silva

ASM JUDICIARY: 8-4-0

YES: Mark Stone, Chau, Chiu, Gonzalez, Holden, Kalra, Maienschein, Reyes

NO: Gallagher, Kiley, Obernolte, Petrie-Norris

UPDATED:

VERSION: July 11, 2019

CONSULTANT: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0001275

Date of Hearing: July 9, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 323

Author:(Wieckowski) – As Amended Ver:June 24, 2019

As Proposed to be Amended

SENATE VOTE: 28-8

SUBJECT: Common interest developments: elections: board qualifications

KEY ISSUE: SHOULD REFORMS BE ENACTED TO PROTECT THE RIGHTS OF HOMEOWNERS TO FULLY VOTE AND PARTICIPATE IN HOMEOWNERS ASSOCIATION BOARD ELECTIONS AND TO SAFEGUARD THE INDEPENDENCE AND INTEGRITY OF THOSE ELECTIONS?

SYNOPSIS

Over 4.8 million Californians live in housing that falls within the jurisdiction of a common interest development. Common interest developments are characterized by a separate ownership of the 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 homeowners association. Due to the outsized power wielded by the homeowners association that governs the development, the election of the association’s board can have a significant impact on the policies that govern the association. Unsurprisingly, homeowners association elections can he highly contentious.

This bill seeks to improve the integrity of homeowners association board elections. The bill sets minimum election requirements and provides for improved processes for notifying homeowners of upcoming election. Additionally, the bill clarifies eligibility rules for candidates in homeowners association elections and provides for an independent election observer without any financial ties to the association. Finally, this bill clarifies the process for a party to contest an election in court.

This bill is sponsored by the Center for California Homeowner Association Law and is supported by several housing advocacy organizations. The supporters contend that this bill is necessary to ensure the fairness of homeowners association elections. The bill is opposed by a number of homeowners associations and community managers who contend that the bill is needlessly burdensome and will result in time consuming election processes that will drive up costs for associations. This bill is similar to SB 1265 (Wieckowski, 2018) that passed this Committee before being vetoed by then-Governor Brown who contended that the bill unnecessarily provided a one-size-fits-all solution to address isolated problems at individual associations. This bill previously passed the Assembly Committee on Housing and Community Development with a 5-1 vote.

SUMMARY: Enacts several reforms to protect the integrity of the elections process for the board of a homeowners association within a common interest development. Specifically, this bill:

1. Requires a common interest development to hold elections for the board of directors of the homeowners association every four years.
2. Requires a common interest development to retain election materials including both a candidate registration list and a voter list.
3. Requires the voter list to include the name, voting power, and either the physical address of the voter’s separate interest, the parcel number or both. Requires the mailing address for the ballot to be listed on the voter list if it differs from the physical address of the voter’s separate interest or if only the parcel number is used.
4. Requires a homeowners association to make both the registration list and voter list available to a member wishing to verify the accuracy of the member’s information on either list at least 30 days before the ballots are distributed.
5. Requires a homeowners association or a member to report any errors or omissions to either the registration list or the voter list to the inspector of elections who shall make corrections within two business days.
6. Requires a homeowners association to disqualify a nominee for the board for not being a member of the association at the time of nomination.
7. Provides that the restriction in 6) does not limit a developer from making a nomination of a nonmember candidate consistent with the voting power of the developer as set forth in Department of Real Estate Regulations and the association’s governing documents.
8. Provides that if title to a separate interest is held by a legal entity that is not a natural person, the governing authority of that legal entity may appoint a natural person to be a member of the homeowners association.
9. Provides the board of a homeowners association may disqualify a nominee for the board for any of the following:
   1. Failure to be current in the payment of regular and special assessments, which are consumer debts subject to validation, so long as the director of the board is held to the same requirements;
   2. Failure to pay any regular and special assessments, as provided, but not for nonpayment of fines, fines renamed as assessments, collection charges, late charges, or costs levied by a third party;
   3. If a nominee, when elected, would be serving on the board at the same time as another person who holds a joint ownership interest in the same separate interest parcel as the person and the other person is either properly nominated for the current election or an incumbent director; or
   4. If a nominee has been a member of the association for less than one year.
10. Requires the election rules adopted by a homeowners association board pursuant to this bill to do all of the following:
    1. Prohibit the denial of a ballot to a member for any reason other than not being a member at the time when ballots are distributed;
    2. Prohibit the denial of a ballot to a person with general power of attorney for a member.
    3. Require the ballot of a person with general power of attorney for a member to be counted if returned in a timely manner; and
    4. Require the inspector or inspectors of elections to deliver, or cause to be delivered, at least 30 days before an election the ballot and a copy of the election rules.
11. Prohibits election operating rules from being amended less than 90 days prior to an election.
12. Provides that an independent third party inspector of elections cannot be a person or business entity under contract to the homeowners association for compensable services.
13. Requires a homeowners association to provide general notice of the procedure and deadline for submitting a nomination at least 30 days before any deadline for submitting a nomination, and individual notice upon request of a member of the association.
14. Provides that the general notice required by 13) must contain the following:
    1. The date and time by which, and the physical address where, ballots are to be returned by mail or handed to the inspector or inspectors of elections;
    2. The date, time, and location of the meeting at which ballots will be counted; and
    3. The list of all candidates’ names that will appear on the ballot.
15. Requires the election inspector to retain signed voter envelopes, voter list, proxies and candidate registration list in addition to the sealed ballots until the tabulation of votes for one year.
16. Requires a homeowners association to retain the following, returned ballots, signed voter envelopes, the voter list of names, parcel numbers and voters to whom ballots were to be sent proxies and the candidate registration and allow a member to inspect and copy these documents.
17. Provides that a cause of action for a violation of member elections may be brought in either the Superior Court or, if the demand does not exceed the jurisdictional amount of small claims court, in small claims court.
18. Requires a court to void the results of an election upon a finding that the election procedures were not followed, unless the homeowners association establishes by a preponderance of the evidence that the failure of the homeowners to follow this article or the election operating rules were unintentional and did not affect the results of the election.
19. Requires a member to be awarded court costs and reasonable attorney’s fees incurred for consulting an attorney in connection with this civil action if the member prevails in a civil action in small claims court.
20. Prohibits a homeowners association from filing a civil action regarding a dispute in which a member has requested internal dispute resolution unless the homeowners association has participated in the specified internal dispute resolution procedure.

EXISTING LAW:

1. Establishes, through the Davis-Stirling Common Interest Development Act the rules and regulations governing the operation of a residential common interest development and the respective rights and duties of a homeowners association and its members. (Civil Code Section 4000 et seq.)
2. Requires elections at a homeowners association regarding assessments legally requiring a vote, election and removal of directors, amendments to the governing documents, or the grant of exclusive use of common area to be held by secret ballot in accordance with specified procedures. (Civil Code Section 5100.)
3. Authorizes homeowners associations to specify the qualifications for candidates for the board and any other elected position, and procedures for the nomination of candidates, consistent with the governing documents. (Civil Code Section 5105 (a)(3).)
4. Authorizes homeowners associations to specify the qualifications for voting, the voting power of each membership, the authenticity, validity, and effect of proxies, and the voting period for elections, including the times at which polls will open and close, consistent with the governing documents. (Civil Code Section 5105 (a)(4).)
5. Authorizes associations to specify a method of selecting one or three independent third parties as inspector or inspectors of elections. (Civil Code Section 5105 (a)(5).)
6. Requires a homeowners association to select an independent third party or parties as an inspector of elections. Provides that the independent third party may not be a person, business entity or subdivision of a business entity who is currently employed or under contract to the HOA for any compensable services unless expressly authorized by the association. (Civil Code Section 5110.)
7. Requires the independent inspector or inspectors of elections, chosen pursuant to 6) to do the following:
   1. Determine the number of memberships entitled to vote and the voting power of each;
   2. Determine the authenticity, validity, and effect of proxies, if any;
   3. Receive ballots;
   4. Hear and determine all challenges and questions in any way arising out of or in connection with the right to vote;
   5. Count and tabulate all votes;
   6. Determine when the polls shall close, consistent with the governing documents;
   7. Determine the tabulated results of the election; and
   8. Perform any acts as may be proper to conduct the election with fairness to all members in accordance with all applicable laws and rules of the association regarding the conduct of the election. (Civil Code Section 5110 (c).)
8. Requires the homeowners association to mail or deliver ballots and two preaddressed envelopes to association members with instructions on how to return ballots not less than 30 days prior to the deadline for voting. Provides that in order to preserve confidentiality, a voter may not be identified by name, address, or lot, parcel, or unit number on the ballot. Requires the association use as a model those procedures used by California counties for ensuring confidentiality of vote by mail ballots, including all of the following:
   1. The ballot itself is not signed by the voter, but is inserted into an envelope that is sealed. This envelope is inserted into a second envelope that is sealed. In the upper left-hand corner of the second envelope, the voter shall sign the voter’s name, indicate the voter’s name, and indicate the address or separate interest identifier that entitles the voter to vote.
   2. The second envelope is addressed to the inspector or inspectors of elections, who will be tallying the votes. The envelope may be mailed or delivered by hand to a location specified by the inspector or inspectors of elections. The member may request a receipt for delivery. (Civil Code Section 5115 (a).)
9. States that a quorum shall be required only if so stated in the governing documents or other provisions of law. If a quorum is required by the governing documents, each ballot received by the inspector of elections is to be treated as a member present at a meeting for purposes of establishing a quorum. (Civil Code Section 5115 (b).)
10. Specifies that except for a meeting to count the votes, an election may be conducted entirely by mail unless otherwise specified in the governing documents. (Civil Code Section 5115 (d).)
11. Provides that all votes must be counted and tabulated by the inspector or inspectors of elections in public at a properly noticed open meeting of the board or members and that any candidate or other member of the association may witness the counting and tabulation of the votes.
12. Prohibits any person, including a member of the association or an employee of the management company, from opening or otherwise reviewing any ballot prior to the time and place at which the ballots are counted and tabulated. States that the inspector of elections may verify the member’s information and signature on the outer envelope prior to the meeting at which the ballots are tabulated. Provides that once a secret ballot is received by the inspector of elections, it shall be irrevocable. (Civil Code Section 5120 (a).)
13. Requires the tabulated results of the election shall be promptly reported to the board and shall be recorded in the minutes of the next meeting of the board and shall be available for review by members of the association (Civil Code Section 5120 (b).)
14. Permits a member of a homeowner association to bring a civil action against an association for declaratory or equitable relief for a violation of the member elections provisions under the Davis-Sterling Act, including, but not limited to, injunctive relief, restitution, or a combination, within one year of the date the cause of action accrues, and permits upon a finding that the election procedures were not followed, a court may void the results of the election. (Civil Code Section 5145 (a).)
15. Permits a prevailing homeowner in a civil action challenging association election proceedings to obtain reasonable attorney’s fees and court costs, and the court may impose a penalty of up to $500 for each violation. (Civil Code Section 5145 (b).)
16. Provides that a cause of action with respect to access to association resources by a candidate or member advocating a point of view, the receipt of a ballot by a member, or the counting, tabulation or reporting of, or access to, ballots for inspection and review after tabulation may be brought in small claims court. (Civil Code Section 5145 (c).)
17. Prohibits a homeowners association or a member from filing an enforcement action in the superior court unless the parties have endeavored to submit their dispute to alternative dispute resolution. This prohibition only applies to an enforcement action that is solely for declaratory, injunctive, or writ relief, or for that relief in conjunction with a claim for monetary damages not in excess of the jurisdictional limits and does not apply to small claims actions or assessment disputes. (Civil Code Section 5930.)

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

COMMENTS: Over 4.8 million housing units within California fall within the jurisdiction of one of the state’s approximately 52,000 common interest developments managed by homeowners associations. Common interest developments 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 homeowners association. Typical common interest developments include condominiums, community apartment projects, housing cooperatives, and planned unit developments. Common interest developments are governed by the Davis-Stirling Act as well as the governing documents of the homeowners association, including bylaws, declarations, and operating rules. Given the significant role the board of the homeowners association plays in the governance of the common interest development, ensuring the fairness of board elections is critical. Accordingly, this bill makes several important changes to strengthen election processes at common interest developments. In support of this bill, the author states:

SB 323 will strengthen the democratic governance in California’s over 52,000 homeowner’s associations. Unfortunately, far too many homeowners association boards have used arbitrary & unjust rules to maintain their power and control over the association, excluding and disenfranchising other residents who seek to challenge them.

Boards manipulate elections by failing to notice an election, failing to deliver ballots to all residents, throwing out valid ballots, and denying access to ballot counting. Sometimes they don’t even hold elections at all.

SB 323 ensures that those holding positions of power over other residents in a homeowners association properly establish elections rules and adhere to them.

Background on homeowners associations and the Davis-Stirling Act. The Davis-Stirling Act sets forth a system for common interest development self-governance. The owners of the separate properties within the common interest development are the members of the homeowners association. Association members vote for the board of directors of the association that oversees operation of the common interest development.

The board manages the common interest development, frequently by hiring an individual or entity to do so on its behalf. The board determines the annual assessments – much like taxes – that members must pay in order to cover communal expenses and establish a reserve fund in the event the association must make unexpected payments. The board enforces the community rules and can propose and make changes to those rules. If members do not pay their assessments in full or on time, or if members violate the community rules, the board has the power to fine the members, place liens on the offending member’s property, and, if ultimately necessary, the power to foreclose. This array of responsibilities and powers has led multiple courts to observe that common interest development associations function in many ways almost “as a second municipal government, regulating many aspects of [the homeowners’] daily lives.” (Villa Milano Homeowners Ass’n v. Il Davorge (2000) 84 Cal.App.4th 819, 836 [citations omitted].) Given that boards essentially place neighbors in charge of regulating other neighbors, unsurprisingly board matters can become highly contentious.

Much like municipal governments, homeowner associations use elections to choose members to serve on the association’s board of directors. The homeowner associations conduct these elections through a paper and mail based balloting system that closely resembles California’s vote-by-mail process. The basic ground rules for these elections are found in the Davis-Stirling Act. Because homeowners associations are generally nonprofit corporations, they are potentially subject to the Nonprofit Mutual Benefit Corporation Law as well. It is not always clear where Davis-Stirling and the Nonprofit Corporations Act conflict or do not conflict on an issue by issue basis; sometimes one act is silent on an issue that the other is very specific on. For example, while the Nonprofit Corporations Law specifies four-year term limits for directors, thus requiring elections every four years (Corporations Code Section 52220 (a)), curiously there does not appear to be any provision in the Davis-Stirling Act expressly requiring homeowners associations to hold elections at all. Existing law provides, however, that in the event of a conflict between the Davis-Stirling Act and the Nonprofit Mutual Benefit Corporation Law (Part 3 (commencing with Section 7110) of Division 2 of Title 1 of the Corporations Code) relating to elections, the provisions of Davis-Stirling shall prevail. (Civil Code Section 5100 (d).)

This bill. Recognizing that homeowners associations essentially function as small, and at times authoritarian, local governments, this bill seeks to reform and improve the election process for homeowners associations. First, the bill clarifies the rules regulating which association members are eligible to stand for election. The bill, essentially, requires homeowners seeking to serve on the association board to be up-to-date with all required assessments, actually be a member of the association for at least one year, and be generally unaffiliated with other board members. Secondly, this bill requires the homeowners association to hold elections, at minimum, every four years and to provide notices of the upcoming election to homeowners. The bill also modifies the timelines for conducting the election to provide homeowners ample time to participate in the process. The bill prohibits an association from denying a member a ballot and prohibits the board from changing election rules within 90 days of an election. Finally, this measure provides for a process whereby an independent observer must oversee the election and specifies the manner in which an aggrieved homeowner may seek redress in courts should they believe an election outcome was not fair or in accordance with the law.

Preserving fairness and independence in homeowners association elections. Existing law requires an independent, third party to conduct an association election. (Civil Code Section 5105 (a)(5).) The independent third party may be a member, but cannot be a director, a candidate for director, or someone related to a director or candidate. (Civil Code Section 5100 (b).) However, existing law does not preclude persons working for the association, for example the current property manager or another company doing business with the association, from overseeing the election so long as the association board approves that entity as the third party observer. Since such entities may have a financial stake in the outcome of the election, the proponents of this measure contend that this creates a conflict of interest.

This bill would eliminate the authority of the homeowners association board to appoint any person or entity currently employed or under contract to the association to serve as the elections inspector. Proponents contend this is a common-sense rule to ensure the integrity of elections. Allowing the property manager who works for the association serve as elections inspector could, at a minimum, create a perception of a conflict of interest, particularly if a candidate for election may have some dispute with the property manager, or if the board will be deciding contractual issues with the manager shortly after the election.

Opponents of this bill regard it as overly burdensome, since a property manager, in particular, is an obvious and easy choice to serve as elections inspector. The opposition contends that this provision will do little more than create a cottage industry of common interest development election observers. However, it should be noted that the bill would prohibit the third party from receiving any “compensable services” to the association. Accordingly, it does not appear that the observer could be paid by the association, this avoiding the development of such an industry. This likely means that a fellow homeowner will have to volunteer for the role. While such a brave sole may be difficult to find, and also subject to potential conflicts with their neighbors, this appears to be the best solution to try and ensure that no financial motives can impact the election.

Contesting an election and the burden of proof. Current law enables any association member to bring a civil action to challenge an association election. If the member can show that a violation of the legally required elections procedures took place, then the court may void the election outcome. (Civil Code Section 5145 (a).) According to the proponents of this bill, in at least one reported case, the court initially declined to void the election results, even though it found procedural violations, until the member was able to show that the violation was intentional and that it affected the results of the election. (Wittenberg v. Beachwalk Homeowners Association (2013) 217 Cal.App.4th 654.)

This bill would provide that if an association member can prove by a preponderance of the evidence that the election procedures specified in existing law and modified by this bill are not followed then a court must invalidate the outcome of an election unless the association can prove by a preponderance of evidence that the noncompliance did not affect the rules of the election. The homeowners associations opposing this bill believe this unfairly shifts the burden to the association to disprove the harm of the error. It should be noted that under existing law the burden to demonstrate that election procedures were not followed already rests with the plaintiff. That will not change under this bill. The only change to existing law is that a court is now obliged to throw out the election results in the event of irregularities, whereas existing law made this permissible. This bill then requires the association to demonstrate that the violation was inconsequential. This seems like a reasonable change in the law to ensure that election procedures are followed.

Attorney’s fees and the venue for contesting a disputed homeowners association election. In addition to modifying the court’s standard for voiding an election, this bill also provides that a plaintiff may challenge an election in either superior court or small claims court. Existing law already awards a prevailing plaintiff attorneys fees and costs in superior court, and this bill provides that a plaintiff that prevails in small claims court is also entitled to fees. The opposition objects to the awarding of these fees, noting that because attorneys are not permitted to try the case in small claims court, the awarding of fees is unreasonable. The proponents argue such fees are reasonable as, even though the plaintiff may try the case themselves, they can consult with an attorney in bringing the matter. Given that trying cases in small claims court will likely reduce overall costs for all sides, providing a prevailing party attorney fees for consultations seems to be a reasonable policy trade-off.

Technical Amendments. As currently in print this bill provides that a former felon convicted of accepting, giving, or offering to give, a bribe, the embezzlement of money, the extortion or theft of money, perjury, or conspiracy to commit any of those crimes is prohibited from serving on the association board. Technical concerns were raised that these provisions may force homeowners associations to conduct background checks on potential candidates. Additional technical concerns have been raised by the sponsor of this bill about the provision related to a developer’s eligibility to serve on the board. Accordingly the following amendments are proposed to subdivision (b) of Civil Code Section 5105 as it is currently in print:

(b) An association shall disqualify a person from a nomination as a candidate pursuant to either of the following:

(1) For for not being a member of the association at the time of the nomination.

(A) (1)This paragraph does not restrict a developer from making a nomination of a nonmember candidate consistent with the voting power of the developer as set forth in Department of Real Estate Regulations and the association’s governing documents.

(B) (2) If title to a separate interest parcel is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of this article.

(2) If, within the past 20 years, the person has been convicted of a felony involving accepting, giving, or offering to give, a bribe, the embezzlement of money, the extortion or theft of money, perjury, or conspiracy to commit any of those crimes. For purposes of this paragraph, “conviction of a felony” includes a conviction of a felony in this state and a conviction under the laws of any other state, the United States, or any foreign government or country of a crime that, if committed in this state, would be a felony, and for which the person has not received a pardon from a person or entity authorized to grant the pardon.

ARGUMENTS IN SUPPORT: This bill is sponsored by the Center for California Homeowner Association Law and is supported by a coalition of housing advocates. Representative of the supporters, the Center for California Homeowner Association Law writes:

Elections in California’s 52,000 associations are no small matter. They are the training ground for broader civic engagement and civic education of American voters. Any attempts to undermine the “Fairness and Integrity of Association Elections” should be rejected. Training homeowners to believe that it’s legitimate to deny them the right to vote and the right to run for office in association elections only erodes the trust of voters in democratic institutions in general. We think SB 323 makes it harder for associations to manipulate HOA elections and goes a long way toward restoring confidence in this essential democratic process.

ARGUMENTS IN OPPOSITION: This bill is opposed by a coalition of homeowners associations and community managers. Representative of the opposition, the Community Associations Institute’s California Legislative Action Committee writes:

SB 323 will significantly increase the costs and time associated with conducting an election. While these costs seem minimal, nearly 70 percent of the association in California are 50 units and more than half have a budget of $100,000 or less, so the additional requirements and expenses created by this bill will have a significant impact on a large number of communities.

The approach proposed by SB 323 is far too drastic and is not supported by most associations in California.

REGISTERED SUPPORT / OPPOSITION:

Support

Center for California Homeowner Association Law (sponsor)

American Civil Liberties Union of California

California Alliance for Retired Americans

Non-Profit Housing Association of California

Schiffer Buus

Urban League of Greater Sacramento

Opposition

California Association of Community Managers

Community Associations Institute- California Legislative Action Committee

Sunset Ridge Homeowners Association, Inc.

Analysis Prepared by: Nicholas Liedtke / JUD. / (916) 319-2334

Date of Hearing: June 19, 2019

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

SBPCA Bill Id:SB 323

Author:(Wieckowski) – As Amended Ver:May 24, 2019

SENATE VOTE: 28-8

SUBJECT: Common interest developments: elections

SUMMARY: Makes various changes to the election procedures in common interest developments (CIDs). Specifically, this bill:

1. Require elections in CIDs to be conducted at a minimum of every four years.
2. Require a CID to retain election materials including both a candidate registration list and a voter list.
3. Requires the voter list to include the name, voting power, and either the physical address of the voter’s separate interest, the parcel number or both. Requires the mailing address for the ballot to be listed on the voter list if it differs from the physical address of the voter’s separate interest or if only the parcel number is used.
4. Requires a homeowners association (HOA) to make both the registration list and voter list available to a member wishing to verify the accuracy of the member’s information on either list at least 30 days before the ballots are distributed.
5. Requires a HOA or a member to report any errors or omissions to either the registration list or the voter list to the inspector(s) of elections who shall make corrections within two business days.
6. Requires an HOA to disqualify a person from a nomination as a candidate for the board of directors as follows:
7. For not being a member of the HOA at the time of the nomination, with the following exceptions:
8. A developer may nominate a nonmember candidate consistent with the voting power of the developer; and
9. A separate interest is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of voting in an election.
10. A person who has been convicted within the last 20 years of a felony involving accepting, giving or offering to give a bribe, the embezzlement of money, the extortion or theft of money, perjury, or conspiracy to commit those crimes.
11. Allows a HOA through its bylaws or election operating rules to disqualify a person from nomination as a candidate if any of the following are true:
12. If a nominee is not current in the payment of regular assessments. Allows an HOA to require a sitting director to be current on payment of regular assessments;
13. If a person who if elected would be serving on the board with another person who holds a joint ownership in the same separate interest as the person or person nominated or an incumbent director;
14. If the person has been a member of the HOA for less than a year; and,
15. A person for not paying regular assessments, but may not disqualify a nominee for nonpayment of fines, fines renamed as assessments, collection charges, late charges, or costs levied by a third party. Provides that a person may be not disqualified for failure to be current in payment of regular assessments if either of the following circumstances are true:
16. The person has paid the regular assessment under protest;
17. The person entered into a payment plan; and,
18. Prohibits an HOA from disqualifying a person who has not been offered an opportunity to engage in internal dispute resolution.
19. Requires the election rules of an HOA to do all of the following:
20. Prohibit the denial of a ballot to a member for any reason other than not being a member at the time with the ballots are distributed;
21. Prohibit the denial of a ballot to a person with general power of attorney for a member;
22. Require the ballot of a person with general power of attorney for a member to be counted if returned in a timely manner;
23. Require the inspector(s) of elections to deliver or cause to be delivered to each member, at least 30 days before an election the following documents:
24. The ballot or ballots; and
25. A copy of the election operating rules by either posting the rules on to an internet website or by individual delivery.
26. Prohibits the HOA from amending the election operating rules less than 90 days prior to an election.
27. Deletes the authority for the HOA to allow the inspector(s) of elections to be employed or under contract by the HOA if expressly authorized by the rules of the HOA.
28. Requires an HOA to provide general notice of the procedure and deadline for submitting a nomination at least 30 days before any deadline for submitting a nomination
29. Requires an HOA to provide general notice of all of the following at least 30 days before the ballots for an election are distributed:
30. The date and time by which ballots are to be returned by mail or hand delivered to the inspector of elections and the physical address where they need to be delivered;
31. The date, time, and location of the meeting at which ballots will be counted; and,
32. The list of all the candidates’ names that will be listed on the ballot.
33. Requires the inspector(s) to retain signed voter envelopes, voter list, proxies and candidate registration list in addition to the sealed ballots until the tabulation of votes for one year.
34. Requires an HOA to retain the following, returned ballots, signed voter envelopes, the voter list of names, parcel numbers and voters to whom ballots were to be sent proxies and the candidate registration and allow a member to inspect and copy these documents.
35. Provides that a cause of action for a violation of member elections may be brought in either the Superior Court or, if the demand does not exceed the jurisdictional amount of small claims court, in small claims court.
36. Requires a court to void the results of an election upon a finding that the election procedures were not followed, unless the HOA establishes by a preponderance of the evidence that the failure of the HOA to follow this article or the election operating rules were unintentional and did not affect the results of the election.
37. Requires a member to be awarded court costs and reasonable attorney’s fees incurred for consulting an attorney in connection with this civil action if the member prevails in a civil action in small claims court.
38. Prohibits an HOA from filing a civil action regarding a dispute in which a member has requested internal dispute resolution unless the HOA has participated in the specified internal dispute resolution procedure.

EXISTING LAW:

1. Provides that an HOA in a CID shall adopt rules relating to board elections that do all of the following:
   1. Ensure that if any candidate or member advocating a point of view is provided access to association media, newsletters, or Internet Web sites during a campaign, for purposes that are reasonably related to that election, equal access shall be provided to all candidates and members advocating a point of view, including those not endorsed by the board, for purposes that are reasonably related to the election;
   2. Ensure access to the common area meeting space, if any exists, during a campaign, at no cost, to all candidates, including those who are not incumbents, and to all members advocating a point of view, including those not endorsed by the board, for purposes reasonably related to the election;
   3. Specify the procedures for the nomination of candidates, consistent with the governing documents. A nomination or election procedure shall not be deemed reasonable if it disallows any member from nominating himself or herself for election to the board;
   4. Specify the qualifications for voting, the voting power of each membership, the authenticity, validity, and effect of proxies, and the voting period for elections, including the times at which polls will open and close, consistent with the governing documents;
   5. Specify a method of selecting one or three independent third parties as inspector or inspectors of elections, as specified; and,
   6. Allow the inspector or inspectors to appoint and oversee additional persons to verify signatures and to count and tabulate votes as the inspector or inspectors deem appropriate, provided that the persons are independent third parties.
2. Requires, at all times, the sealed ballots to be in the custody of the inspector or inspectors of elections or at a location designated by the inspector or inspectors until after the tabulation of the vote, and until the time allowed for challenging the election has expired, at which time custody shall be transferred to the HOA.
3. Requires the HOA to select an independent third party or parties as an inspector of elections. An independent third party may not be a person, business entity, or subdivision of a business entity who is currently employed or under contract to the HOA for any compensable services unless expressly authorized by the HOA.
4. Permits a member of an HOA to bring a civil action against an HOA for declaratory or equitable relief for a violation of the member elections provisions under the Davis-Sterling Act including but not limited to injunctive relief, restitution, or a combination, within one year of the date the cause of action accrues. Upon a finding that the election procedures were not followed, a court may void the results of the election.
5. Permits a prevailing party in a civil action described in 4) above, to be entitled to reasonable attorney’s fees and court costs, and the court may impose a penalty of up to $500 for each violation.
6. Provides that a cause of action with respect to access to association resources by a candidate or member advocating a point of view, the receipt of a ballot by a member, or the counting, tabulation or reporting of, or access to, ballots for inspection and review after tabulation may be brought in small claims court.
7. Requires an HOA to provide a fair, reasonable, and expeditious procedure for resolving a dispute between an HOA and a member and shall make maximum, reasonable use of available local dispute resolution programs involving a neutral third party, including low-cost mediation programs. The HOA’s internal dispute resolution (IDR) procedure, invoked by either party to the dispute, shall, at a minimum, satisfy specified requirements.
8. Prohibits an HOA or a member from filing an enforcement action in the superior court unless the parties have endeavored to submit their dispute to alternative dispute resolution (ADR). This prohibition only applies to an enforcement action that is solely for declaratory, injunctive, or writ relief, or for that relief in conjunction with a claim for monetary damages not in excess of the jurisdictional limits and does not apply to small claims actions or assessment disputes.

FISCAL EFFECT: None.

COMMENTS:

Purpose of this bill: According to the author, “SB 323 is needed to ensure voting rights of members living in HOAs are preserved and not treated as a mere privilege and available for use as an enforcement tool. If HOA boards can strip away voting rights of perceived “problem residents,” who may be seeking to unseat them from their position of power, board members can act with frivolity and impunity in silencing dissent. Just as we defend voting rights in local, state, and national elections, we must also do the same in these HOA elections, whose outcomes ultimately control the day-to-day personal lives of the nearly 1:4 people living in a common interest development in California.”

Background: There are over 52,000 CIDs in the state that comprise over six 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 an association. CIDs are governed by the Davis-Stirling Act (the Act) as well as the governing documents of the association, including bylaws, declaration, and operating rules. The Act requires elections to conform to an extensive process, including double stuffed ballots and the selection of one or three independent third parties as an inspector or inspectors of elections. CIDs range in size from four to 30,000; however the vast majority are small -- seventy-five percent are made up of 50 units or less.

CID elections procedures: Under existing law, CID elections must be held by secret ballot and, among other things, an association must adopt rules around campaigning, specifying the qualifications for candidates for the board, qualifications for voting, and the method for selecting independent third-party inspectors. Ballots and two preaddressed envelopes with instructions for returning the ballot are mailed to every member not less than 30 days prior to the deadline for voting. The ballot is inserted into an envelope, which is placed in a second envelope and mailed to the inspectors. The votes are tabulated by the inspectors in public at a properly noticed open meeting of the board or members. The tabulated results must be promptly reported to the board and be recorded in the minutes of the next meeting. Additionally, within 15 days of the election, the board must give general notice to all members of the results of the election. Filling board of directors spots on a CID board can be challenging as many members do not want to dedicate the time to serving on the board. Board membership also requires enforcing the laws governing CIDs on neighbors, this can include engaging in dispute solution and collecting delinquent assessments.

Qualifications for board members: HOAs are required to adopt operating rules that govern the elections including qualifications for candidates for the board of directors. This bill would require an HOA to disqualify a candidate for the board if he or she is not a member of the HOA or if the person has been convicted of a felony in the last 20 years. HOAs would not be allowed to disqualify a candidate who has owned in the CID for less than one year. An HOA could also disqualify a person who is delinquent on regular assessments, exceptthat the person has to have been offered a payment plan, the person may pay the assessment under protest, or if the person was not given an opportunity to participate internal dispute resolution. Board members could also not serve on the board if delinquent on regular assessments. Regular assessments are payments made by the membership of the HOA to pay for the basic operations of the CID. CIDs also can approve special assessments necessary to pay for larger expenses like significant construction or renovations of the CID. This bill would only allow an HOA to prevent a member from serving on the board if he or she is delinquent on regular assessments. The committee may wish to consider including special assessments in this prohibition. Board members will be required to take actions against members who are delinquent on both regular and special assessments, a board member should be current on their own assessments, both regular and special, if they are enforcing on another member.

Record retention and inspection: An HOA is required to retain the ballots after an election in case of a potential challenge to the election. This bill would require the HOA to also retain the signed voter envelopes, the voter list of names, parcel numbers, and voters to whom ballots were to be sent, proxies, and the candidate registration list. Members can review and make copies of these materials. The bill explicitly prohibits copying the signed returned ballot.

Inspector of elections: HOAs are required to retain an inspector or inspector of election to receive and count the ballots. The inspector of election must be an independent third party, including a member who is not a candidate, board member, or related to either. The inspector cannot be an HOA employee or entity the HOA contracts with unless the operating rules of the HOA expressly authorizing by the HOA. This bill would eliminated the authority of the HOA to adopt a rule allowing an employee or contracted entity to serve as inspector of elections. The committee may wish to consider if this would undermined the self-governance of the HOA.

Arguments in support: Supporters argue that despite the extensive existing requirements for conducting elections in CIDs improvements are needed. These improvements include requiring access to inspect election materials, preventing HOAs from establishing qualifications for members to run for the board of directors, and adding additional notice requirements.

Arguments in opposition: Opponents argue this bill prohibits an HOA from establishing qualifications for candidates for the Board of Directors. They also raise concerns with the increase the time necessary to conduct an election by adding a requirement that members receive a list of candidates 30 days prior to ballots being distributed.

Previous legislation:

SB 1265 (Wieckowski, 2018) This bill was substantially similar to SB 323 and would have made several changes to the elections process held in CIDs, as well as changes to the process for handling disputes between a member and an HOA. This bill was vetoed, below is the veto message:

“I am returning Senate Bill 1265 without my signature.

This bill makes several changes to the elections process for homeowner associations within common interest developments.

California has over 50,000 common interest developments varying in purpose and size. Each one has governing documents that are tailored specifically for that individual community. This bill takes a once-size-fits-all approach, but not all homeowner associations are alike.

If changes to an election process are needed, they should be resolved by the members of that specific community.”

Committee amendments:

1. Require a candidate and a member of the board of directors to be current on special assessments, in addition to regular assessments, in order to serve on the board of directors.
2. Reinstate existing law to allow an employee or a person that contracts with an HOA to serve as the inspector of elections, if the HOA rules expressly allow for it.

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

REGISTERED SUPPORT / OPPOSITION:

Support

Center for California Homeowner Association Law (Sponsor)
American Civil Liberties Union of California
Non-Profit Housing Association of Northern California
Schiffer &Buus
Greater Sacramento Urban League

Individuals - 2

Opposition

Community Associations Institute

Individuals - 1

Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085

 THIRD READING  

Bill No: SB 323

Author: Wieckowski (D)

Amended: 5/24/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-0, 4/2/19

AYES: Jackson, Allen, Caballero, Monning, Stern, Umberg, Wieckowski

NO VOTE RECORDED: Borgeas

SENATE HOUSING COMMITTEE: 8-1, 4/30/19

AYES: Wiener, Caballero, Durazo, McGuire, Roth, Skinner, Umberg, Wieckowski

NOES: Morrell

NO VOTE RECORDED: Bates, Moorlach

SUBJECT: Common interest developments: elections

SOURCE: Center for California Homeowner Association Law

DIGEST:

This bill enacts a series of reforms to the laws governing board of director elections in common interest developments, commonly referred to as homeowners associations or HOAs. In broad strokes, the reforms seek to increase the regularity, fairness, formality, and transparency associated with such elections.

Senate Floor Amendments of 5/24/19 make two types of modifications to the bill: First, the amendments alter the eligibility of people to be nominated and run for seats on the board of directors. Specifically: (1) consistent with existing law, an HOA would have to permit members to nominate themselves to be candidates; (2) a developer would be able to nominate a non-member as a candidate for the board of directors consistent with the developers voting power; (3) a legal entity that is not a natural person could appoint a natural person as a member for purposes of nomination and running for the board. Second, the amendments clarify the process a judge should use in determining whether or not to void an HOA election that has been challenged. The amendments explain that the burden of proof stands with the member challenging the election to show that a violation of the election laws or rules was committed. Upon such a showing, the burden shifts to the association to show that the violation did not affect the outcome of the election. If the association cannot carry this burden, then the judge shall void the election. All other amendments are non-substantive in nature. They modify the language of the bill to make it more clear and easier to read.

ANALYSIS:

Existing law:

1. Establishes, within the Davis-Stirling Common Interest Development Act, rules and regulations governing the operation of a residential common interest development (CID) and the respective rights and duties of an HOA and its members. (Civ. Code § 4000 et seq.)
2. Requires association elections regarding assessments legally requiring a vote, election and removal of directors, amendments to the governing documents, or the grant of exclusive use of common area to be held by secret ballot in accordance with specified procedures. (Civ. Code § 5100 et seq.)

This bill:

1. Requires an HOA to hold elections for a seat on the board of directors at the end of each expiring term and in any event at least once every four years.
2. Prohibits an HOA from amending its elections operating rules within 90 days of an election.
3. Sets forth the following grounds on which an HOA must disqualify a nominee from becoming a candidate for the board of directors:
   1. not being a member of the association at the time of the nomination, except that a developer may make a nomination of a nonmember candidate consistent with the voting power of the developer and a legal entity that is not a natural person may appoint a natural person to be a member stand-in for that legal entity; or
   2. conviction, as defined, of specified felonies involving accepting, giving or offering to give, a bribe, the embezzlement of money, the extortion or theft of money, perjury or conspiracy to commit any of those crimes, within the past 20 years.
4. Sets forth the following grounds on which an HOA may disqualify a nominee from becoming a candidate for the board of directors, provided that the rule is part of the association’s by-laws or is part of the HOA’s elections operating rules:
   1. all of the following are true:
      1. the nominee is not current on the payment of regular assessments, as defined;
      2. the nominee has been given the opportunity to engage in an internal dispute resolution process, as specified;
      3. the association also requires an incumbent to be current on the payment of regular assessments; and
      4. none of the following exceptions apply:
         1. the nominee paid the regular assessments under protest;
         2. the nominee has entered into a payment plan; or
         3. the nominee has not been provided with the opportunity to engage in internal dispute resolution, as specified;
   2. the nominee, if elected, would cause a violation of an association by-law prohibiting two or more joint owners of the same HOA parcel from serving on the board simultaneously; or
   3. the nominee has been a member of the association for less than one year.
5. Provides that an HOA’s election rules must require:
   1. retention, as association elections materials, of:
      1. a voter list with name, parcel number, and voting power; and
      2. a candidate registration list;
   2. availability of the voter and candidate lists set forth in (i) and (ii), above, for inspection by members at least 30 days before the ballots are distributed;
   3. correction of any identified errors in the voter or candidate lists within two business days.
6. Requires an HOA to provide general notice of all of the following, unless individual notice is requested, on the following timelines:
   1. at least 30 days before any deadline for submitting a nomination:
      1. the procedure and deadline for submitting a nomination at least 30 days before the deadline for submitting a nomination.
   2. at least 30 days before distribution of ballots:
      1. the date and time by which, and the physical address where ballots are to be returned by mail or handed to the inspector;
      2. the date, time, and location of the meeting at which ballots will be counted; and
      3. the list of all candidates names that will appear on the ballot.
7. Requires an HOA’s election operating rules to:
   1. prohibit the denial of a ballot to a member for any reason other than not being a member at the time when ballots are distributed;
   2. prohibit the denial of a ballot to a person with power of attorney for a member;
   3. require the ballot of a person with power of attorney for a member to be counted if returned in a timely manner; and
   4. require the inspector or inspectors of elections to deliver to each member, at least 30 days before an election and by individual delivery or posting to an Internet Web site in the specified fashion, both of the following documents:
      1. a copy of the election operating rules; and
      2. the ballot or ballots.
8. Prohibits an HOA’s election rules from permitting any person, business, or subdivision of a business entity to serve as the inspector of elections if currently employed or under contract with the HOA for any compensable services other than to serve as an inspector of elections.
9. Adds signed voter envelopes and a candidate registration list to the enumerated items that shall be in the custody of the inspector or inspectors of elections or at a location designated by the inspector or inspectors until after the tabulation of the vote and until the time allowed for challenging the election has expired.
10. Provides that a cause of action for a violation of member elections may be brought within one year of the date that the inspector or inspectors notify the HOA board and membership of the election results or the cause of action accrues, whichever is later.
11. Requires a court to void the results of an election if the member challenging the election shows, by a preponderance of the evidence, that the election procedures were not followed, and the association is not able to show, by a preponderance of the evidence, that its noncompliance with this article or the election operating rules did not affect the results of the election.
12. Requires a court review a cause of action brought under 11) above, to state its findings in writing as part of the record.
13. Requires a member to be awarded court costs and reasonable attorney’s fees incurred for consulting an attorney in connection with this civil action if the member prevails in a civil action in small claims court.
14. Permits a cause of action alleging failing to comply with association election laws or rules in either superior court or, if the amount of the demand does not exceed the jurisdictional amount of the small claims court, in small claims court.
15. Defines “association election materials” to mean returned ballots, signed voter envelopes, a list of parcel numbers and voters to whom ballots were sent, proxies, and the candidate registration list, and adds such materials to the enumerated “association records” to which members are entitled access under specified procedures.
16. Provides that signed voter envelopes may only be inspected, but not copied.
17. Prohibits an HOA from filing a civil action regarding a dispute in which a member has requested internal dispute resolution unless the association has engaged in specified internal dispute resolution procedures in good faith.

Background

CIDs, often referred to as HOAs, are self-governing groups of dwellings that share common spaces and amenities. They come in a wide variety of physical layouts: condominium complexes, apartment buildings, and neighborhoods of detached, single-family residences, for example. Some consist of thousands of units. Others are made up of just a handful. Dwellings within common housing developments currently account for approximately a quarter of the state’s overall housing stock, meaning that the laws governing such developments have a large impact on the population. In California, HOAs are primarily governed by the Davis-Stirling Act. (Civ. Code §§ 4000-6150.)

The Davis-Stirling Act sets forth a system for HOA self-governance. The owners of the separate properties within the HOA are the members of the HOA. Association members vote for the board of directors of the association that oversees operation of the HOA.

The board manages the HOA, frequently by hiring an individual or entity – the property manager – to do so on its behalf. The board determines the annual assessments – much like taxes – that members must pay in order to cover communal expenses. The board enforces the community rules and can propose and make changes to those rules. If members do not pay their assessments in full or on time, or if members violate the community rules, the board has the power to fine the members, place liens on the offending member’s property, and, if ultimately necessary, the power to foreclose. This array of responsibilities and powers has led multiple courts to observe that HOAs function in many ways almost “as a second municipal government, regulating many aspects of [the homeowners’] daily lives.” (Villa Milano Homeowners Ass’n v. Il Davorge (2000) 84 Cal.App.4th 819, 836 [citations omitted].)

Much like municipal governments, HOAs use elections to choose members to serve on the association’s board of directors. The Davis-Stirling Act sets forth certain basic ground rules for these elections. (Civ. Code § 5100 et seq.) The HOAs conduct the elections through a paper and mail based balloting system that closely resembles California’s vote-by-mail process. (Civ. Code § 5115.) Beyond these basic ground rules, however, the Davis-Stirling Act leaves many aspects of the association elections process to the discretion of the association, including the board itself. The proponents of this bill assert that incumbent boards have seized upon this discretion to undermine the democratic function of the elections by, among other things, disqualifying members from running for the board, limiting members’ ability to vote, and rigging the balloting procedures. To prevent such manipulation of the process, this bill enacts a series of reforms to the laws governing HOA elections. Of particular note, this bill: (1) requires that elections take place at regular intervals; (2) prohibits HOAs from disqualifying members from running for the board of directors except on narrow, specified grounds; and (3) restricts HOAs from disenfranchising members.

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

SUPPORT: (Verified 5/28/19)

Center for California Homeowner Association Law (source)

American Civil Liberties Union of California

California Association of Retired Americans

Greater Sacramento Urban League

Non-Profit Housing Association of Northern California

Schiffer & Buus

OPPOSITION: (Verified 5/29/19)

California Association of Community Managers

Community Associations Institute - California Legislative Action Committee

Lake Wildwood Association

28 individuals

ARGUMENTS IN SUPPORT: According to the author:

SB 323 will strengthen the democratic governance in California’s over 52,000 homeowner’s associations.

Unfortunately, far too many HOA boards have used arbitrary & unjust rules to maintain their power and control over the association, excluding and disenfranchising other residents who seek to challenge them. Boards manipulate elections by failing to notice an election, failing to deliver ballots to all residents, throwing out valid ballots, and denying access to ballot counting. Sometimes they don’t even hold elections at all.

SB 323 ensures that those holding positions of power over other residents in HOAs properly establish elections rules and adhere to them.

As sponsor of the bill, the Center for California Homeowner Association Law writes:

The California Appellate courts have ruled repeatedly that associations parallel in almost every way the powers, duties, and responsibilities of local government. The original legislation to create integrity in association elections built on these opinions by stating that “it is the intent of the Legislature to ensure that democratic principles and practices are in place with respect to the governance of common interest developments.” Nowhere in association governance are democratic principles more vital than during elections […]

Unfortunately, since their enactment, the California laws governing association elections have been ignored or violated or undermined […]. SB323 aims to address these abuses.

Elections in California’s 52,000 associations are no small matter. We think SB323 makes it harder for associations to manipulate HOA elections and goes a long way toward restoring confidence in this essential democratic process.

ARGUMENTS IN OPPOSITION: In opposition to the bill, the Community Associations Institute - California Legislative Action Committee (CAI-CLAC) writes:

As written, SB 323 threatens the privacy of residents, will drastically increase costs faced by these not-for-profit entities and suppress voter participation. […] CAI-CLAC supports fair and open elections. However, absent any evidence current law is insufficient to protect the interests of our members, we cannot support the changes proposed […].

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

5/29/19 9:24:10

**** END ****

 THIRD READING  

Bill No: SB 323

Author: Wieckowski (D)

Amended: 5/1/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-0, 4/2/19

AYES: Jackson, Allen, Caballero, Monning, Stern, Umberg, Wieckowski

NO VOTE RECORDED: Borgeas

SENATE HOUSING COMMITTEE: 8-1, 4/30/19

AYES: Wiener, Caballero, Durazo, McGuire, Roth, Skinner, Umberg, Wieckowski

NOES: Morrell

NO VOTE RECORDED: Bates, Moorlach

SUBJECT: Common interest developments: elections

SOURCE: Center for California Homeowner Association Law

DIGEST:

This bill enacts a series of reforms to the laws governing board of director elections in common interest developments, commonly referred to as homeowners associations or HOAs. In broad strokes, the reforms seek to increase the regularity, fairness, formality, and transparency associated with such elections.

ANALYSIS:

Existing law:

1. Establishes, within the Davis-Stirling Common Interest Development Act, rules and regulations governing the operation of a residential common interest development (CID) and the respective rights and duties of an HOA and its members. (Civ. Code § 4000 et seq.)
2. Requires association elections regarding assessments legally requiring a vote, election and removal of directors, amendments to the governing documents, or the grant of exclusive use of common area to be held by secret ballot in accordance with specified procedures. (Civ. Code § 5100 et seq.)

This bill:

1. Requires an HOA to hold elections for a seat on the board of directors at the end of each expiring term and in any event at least once every four years.
2. Prohibits an HOA from amending its elections operating rules within 90 days of an election.
3. Sets forth the following grounds on which an HOA must disqualify a nominee from becoming a candidate for the board of directors:
   1. not being a member of the association at the time of the nomination; or
   2. conviction, as defined, of specified felonies involving accepting, giving or offering to give, a bribe, the embezzlement of money, the extortion or theft of money, perjury or conspiracy to commit any of those crimes, within the past 20 years.
4. Sets forth the following grounds on which an HOA may disqualify a nominee from becoming a candidate for the board of directors, provided that the rule is part of the association’s by-laws or is part of the HOA’s elections operating rules:
   1. all of the following are true:
      1. the nominee is not current on the payment of regular assessments, as defined;
      2. the nominee has been given the opportunity to engage in an internal dispute resolution process, as specified;
      3. the association also requires an incumbent to be current on the payment of regular assessments; and
      4. none of the following exceptions apply:
         1. the nominee paid the regular assessments under protest;
         2. the nominee has entered into a payment plan; or
         3. the nominee has not been provided with the opportunity to engage in internal dispute resolution, as specified;
   2. the nominee, if elected, would cause a violation of an association by-law prohibiting two or more joint owners of the same HOA parcel from serving on the board simultaneously; or
   3. the nominee has been a member of the association for less than one year.
5. Provides that an HOA’s election rules must require:
   1. retention, as association elections materials, of:
      1. a voter list with name, parcel number, and voting power; and
      2. a candidate registration list;
   2. availability of the voter and candidate lists set forth in (i) and (ii), above, for inspection by members;
   3. correction of any identified errors in the voter or candidate lists within two business days.
6. Requires an HOA to provide general notice of all of the following, unless individual notice is requested, on the following timelines:
   1. at least 30 days before any deadline for submitting a nomination:
      1. the procedure and deadline for submitting a nomination at least 30 days before the deadline for submitting a nomination.
   2. at least 30 days before distribution of ballots:
      1. the date and time by which, and the physical address where ballots are to be returned by mail or handed to the inspector;
      2. the date, time, and location of the meeting at which ballots will be counted; and
      3. the list of all candidates names that will appear on the ballot.
7. Requires an HOA’s election operating rules to:
   1. prohibit the denial of a ballot to a member for any reason other than not being a member at the time when ballots are distributed;
   2. prohibit the denial of a ballot to a person with power of attorney for a member;
   3. require the ballot of a person with power of attorney for a member to be counted if returned in a timely manner; and
   4. require the inspector or inspectors of elections to deliver to each member, at least 30 days before an election and by individual delivery or posting to an Internet Web site in the specified fashion, both of the following documents:
      1. a copy of the election operating rules; and
      2. the ballot or ballots.
8. Prohibits an HOA’s election rules from permitting any person, business, or subdivision of a business entity to serve as the inspector of elections if currently employed or under contract with the HOA for any compensable services other than to serve as an inspector of elections.
9. Adds signed voter envelopes and a candidate registration list to the enumerated items that shall be in the custody of the inspector or inspectors of elections or at a location designated by the inspector or inspectors until after the tabulation of the vote and until the time allowed for challenging the election has expired.
10. Provides that a cause of action for a violation of member elections may be brought within one year of the date that the inspector or inspectors notify the HOA board and membership of the election results or the cause of action accrues, whichever is later.
11. Requires a court to void the results of an election upon a finding that the election procedures were not followed, if the court finds by a preponderance of the evidence that HOA’s noncompliance with this article or the election operating rules affected the results of the election.
12. Requires a court review a cause of action brought under 9) above, to state its findings in writing as part of the record.
13. Requires a member to be awarded court costs and reasonable attorney’s fees incurred for consulting an attorney in connection with this civil action if the member prevails in a civil action in small claims court.
14. Permits a cause of action alleging failing to comply with association election laws or rules in either superior court or, if the amount of the demand does not exceed the jurisdictional amount of the small claims court, in small claims court.
15. Defines “association election materials” to mean returned ballots, signed voter envelopes, a list of parcel numbers and voters to whom ballots were sent, proxies, and the candidate registration list, and adds such materials to the enumerated “association records” to which members are entitled access under specified procedures.
16. Provides that signed voter envelopes may only be inspected, but not copied.
17. Prohibits an HOA from filing a civil action regarding a dispute in which a member has requested internal dispute resolution unless the association has engaged in specified internal dispute resolution procedures in good faith.

Background

CIDs, often referred to as HOAs, are self-governing groups of dwellings that share common spaces and amenities. They come in a wide variety of physical layouts: condominium complexes, apartment buildings, and neighborhoods of detached, single-family residences, for example. Some consist of thousands of units. Others are made up of just a handful. Dwellings within common housing developments currently account for approximately a quarter of the state’s overall housing stock, meaning that the laws governing such developments have a large impact on the population. In California, HOAs are primarily governed by the Davis-Stirling Act. (Civ. Code §§ 4000-6150.)

The Davis-Stirling Act sets forth a system for HOA self-governance. The owners of the separate properties within the HOA are the members of the HOA. Association members vote for the board of directors of the association that oversees operation of the HOA.

The board manages the HOA, frequently by hiring an individual or entity – the property manager – to do so on its behalf. The board determines the annual assessments – much like taxes – that members must pay in order to cover communal expenses. The board enforces the community rules and can propose and make changes to those rules. If members do not pay their assessments in full or on time, or if members violate the community rules, the board has the power to fine the members, place liens on the offending member’s property, and, if ultimately necessary, the power to foreclose. This array of responsibilities and powers has led multiple courts to observe that HOAs function in many ways almost “as a second municipal government, regulating many aspects of [the homeowners’] daily lives.” (Villa Milano Homeowners Ass’n v. Il Davorge (2000) 84 Cal.App.4th 819, 836 [citations omitted].)

Much like municipal governments, HOAs use elections to choose members to serve on the association’s board of directors. The Davis-Stirling Act sets forth certain basic ground rules for these elections. (Civ. Code § 5100 et seq.) The HOAs conduct the elections through a paper and mail based balloting system that closely resembles California’s vote-by-mail process. (Civ. Code § 5115.) Beyond these basic ground rules, however, the Davis-Stirling Act leaves many aspects of the association elections process to the discretion of the association, including the board itself. The proponents of this bill assert that incumbent boards have seized upon this discretion to undermine the democratic function of the elections by, among other things, disqualifying members from running for the board, limiting members’ ability to vote, and rigging the balloting procedures. To prevent such manipulation of the process, this bill enacts a series of reforms to the laws governing HOA elections. Of particular note, this bill: (1) requires that elections take place at regular intervals; (2) prohibits HOAs from disqualifying members from running for the board of directors except on narrow, specified grounds; and (3) restricts HOAs from disenfranchising members.

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

SUPPORT: (Verified 5/1/19)

Center for California Homeowner Association Law (source)

American Civil Liberties Union of California

California Association of Retired Americans

Greater Sacramento Urban League

Non-Profit Housing Association of Northern California

Schiffer & Buus

OPPOSITION: (Verified 5/1/19)

California Association of Community Managers

California Building Industry Association

Community Associations Institute - California Legislative Action Committee

Lake Wildwood Association

28 individuals

ARGUMENTS IN SUPPORT: According to the author:

SB 323 will strengthen the democratic governance in California’s over 52,000 homeowner’s associations.

Unfortunately, far too many HOA boards have used arbitrary & unjust rules to maintain their power and control over the association, excluding and disenfranchising other residents who seek to challenge them. Boards manipulate elections by failing to notice an election, failing to deliver ballots to all residents, throwing out valid ballots, and denying access to ballot counting. Sometimes they don’t even hold elections at all.

SB 323 ensures that those holding positions of power over other residents in HOAs properly establish elections rules and adhere to them.

As sponsor of the bill, the Center for California Homeowner Association Law writes:

The California Appellate courts have ruled repeatedly that associations parallel in almost every way the powers, duties, and responsibilities of local government. The original legislation to create integrity in association elections built on these opinions by stating that “it is the intent of the Legislature to ensure that democratic principles and practices are in place with respect to the governance of common interest developments.” Nowhere in association governance are democratic principles more vital than during elections […]

Unfortunately, since their enactment, the California laws governing association elections have been ignored or violated or undermined […]. SB323 aims to address these abuses.

Elections in California’s 52,000 associations are no small matter. We think SB323 makes it harder for associations to manipulate HOA elections and goes a long way toward restoring confidence in this essential democratic process.

ARGUMENTS IN OPPOSITION: In opposition to the bill, the Community Associations Institute - California Legislative Action Committee (CAI-CLAC) writes:

As written, SB 323 threatens the privacy of residents, will drastically increase costs faced by these not-for-profit entities and suppress voter participation. […] CAI-CLAC supports fair and open elections. However, absent any evidence current law is insufficient to protect the interests of our members, we cannot support the changes proposed […].

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

5/1/19 14:58:25

**** END ****

SENATE COMMITTEE ON HOUSING

Senator Scott Wiener, Chair

2019 - 2020 Regular

Bill No: SB 323 Hearing Date: 4/30/2019

SUBJECT: Common interest developments: elections

DIGEST: This bill makes several changes to the elections process held in common interest developments (CIDs). It also makes changes to the process for handling disputes between a member and a homeowner’s association (HOA).

ANALYSIS:

Existing law, under the Davis-Stirling Act:

1. Provides that an HOA in a CID shall adopt rules relating to board elections that do all of the following:
   1. Ensure that if any candidate or member advocating a point of view is provided access to association media, newsletters, or Internet Web sites during a campaign, for purposes that are reasonably related to that election, equal access shall be provided to all candidates and members advocating a point of view, including those not endorsed by the board, for purposes that are reasonably related to the election.
   2. Ensure access to the common area meeting space, if any exists, during a campaign, at no cost, to all candidates, including those who are not incumbents, and to all members advocating a point of view, including those not endorsed by the board, for purposes reasonably related to the election.
   3. Specify the procedures for the nomination of candidates, consistent with the governing documents. A nomination or election procedure shall not be deemed reasonable if it disallows any member from nominating himself or herself for election to the board. 
   4. Specify the qualifications for voting, the voting power of each membership, the authenticity, validity, and effect of proxies, and the voting period for elections, including the times at which polls will open and close, consistent with the governing documents.
   5. Specify a method of selecting one or three independent third parties as inspector or inspectors of elections, as specified.
   6. Allow the inspector or inspectors to appoint and oversee additional persons to verify signatures and to count and tabulate votes as the inspector or inspectors deem appropriate, provided that the persons are independent third parties.
2. Requires, at all times, the sealed ballots to be in the custody of the inspector or inspectors of elections or at a location designated by the inspector or inspectors until after the tabulation of the vote, and until the time allowed for challenging the election has expired, at which time custody shall be transferred to the HOA.
3. Requires the HOA to select an independent third party or parties as an inspector of elections. An independent third party may not be a person, business entity, or subdivision of a business entity who is currently employed or under contract to the HOA for any compensable services unless expressly authorized by the HOA.
4. Permits a member of an HOA to bring a civil action against an HOA for declaratory or equitable relief for a violation of the member elections provisions under the Davis-Sterling Act including but not limited to injunctive relief, restitution, or a combination, within one year of the date the cause of action accrues. Upon a finding that the election procedures were not followed, a court may void the results of the election.
5. Permits a prevailing party in a civil action described in 4) above, to be entitled to reasonable attorney’s fees and court costs, and the court may impose a penalty of up to $500 for each violation.
6. Provides that a cause of action with respect to access to association resources by a candidate or member advocating a point of view, the receipt of a ballot by a member, or the counting, tabulation or reporting of, or access to, ballots for inspection and review after tabulation may be brought in small claims court.
7. Requires an HOA to provide a fair, reasonable, and expeditious procedure for resolving a dispute between an HOA and a member and shall make maximum, reasonable use of available local dispute resolution programs involving a neutral third party, including low-cost mediation programs. The HOA’s internal dispute resolution (IDR) procedure, invoked by either party to the dispute, shall, at a minimum, satisfy specified requirements.
8. Prohibits an HOA or a member from filing an enforcement action in the superior court unless the parties have endeavored to submit their dispute to alternative dispute resolution (ADR). This prohibition only applies to an enforcement action that is solely for declaratory, injunctive, or writ relief, or for that relief in conjunction with a claim for monetary damages not in excess of the jurisdictional limits and does not apply to small claims actions or assessment disputes.

This bill:

Access to ballot counting

1. Requires the HOA election rules to ensure that the meeting at which the ballots are counted meets both of the following criteria:
   1. The meeting is accessible to all members and their representatives who want to witness the tabulation.
   2. The meeting is held at a common area meeting space of HOA property, or if no common area meeting space exists, at a location within a reasonable distance of the property.

Voter eligibility

1. Requires the elections rules to do all of the following:
   1. Prohibit the denial of a ballot to a member for any reason other than not being a member at the time when ballots are distributed.
   2. Prohibit the denial of a ballot to a person with general power of attorney for a member.
   3. Require the ballot of a person with general power of attorney for a member to be counted if returned in a timely manner.

Candidate eligibility

1. Requires an HOA to disqualify an individual from nomination if either:
   1. The individual is not a member of the HOA at the time of the nomination.
   2. The individual has been convicted within the last 20 years of a felony related to embezzlement, extortion, theft, perjury, or conspiracy to commit any of these crimes, as specified.
2. Allows an HOA to disqualify a member from nomination if any of the following occur:
   1. The individual is not current in payment of regular assessments, as specified.
   2. The person has a joint ownership interest with another member of the board.
   3. The individual has been a member of the HOA for less than one year.
3. Defines disqualifying debt and outlines the circumstances under which a nominee may be disqualified for disqualifying debt.
4. Requires an HOA, prior to disqualifying a nominee for nonpayment of regular assessments, to provide the nominee, in a timely manner, the opportunity to engage in the internal dispute resolution process pursuant to the Davis-Stirling Act, as specified.
5. Removes references in the rules that permit the identification of qualifications for candidacy or voting.

Elections process

1. Requires an HOA to hold an election at the end of each board member’s expiring term and at minimum every four years.
2. Requires an HOA to adopt election rules at least 90 days before any election.
3. Requires the HOA, unless individual notice has been requested, to provide general notice at least 30 days prior to ballots being distributed that includes, among other things, the date and time for ballots to be returned, the date and time of the meeting at which the ballots will be counted, the procedure and deadline for submitting a nomination, the list of names that will appear on the ballot, and the list of voters, as specified.
4. Requires the HOA to require any errors or omissions to the candidate or voter list to be immediately reported to the inspector or inspectors of elections and requires the latter to make the corrections within two business days.
5. Require the inspector or inspectors of elections to deliver, or cause to be delivered, at least 30 days before an election, to each member, the ballot or ballots and a copy of the election rules. Delivery of the election rules must be either posted on an Internet Web site as specified or by individual delivery.
6. Adds that the ballots, signed voter envelopes, voter list, proxies, and a candidate registration list shall be in the custody of the inspector or inspectors of elections or at a location designated by the inspector or inspectors until after the tabulation of the vote and until the time allowed for challenging the election has expired.

Eligibility of elections inspectors

1. Prohibits an HOA’s rules from permitting any person, business, or subdivision of a business entity currently employed or under contract with the HOA for any compensable services from serving as an inspector of elections.

Elections disputes

1. Provides that a cause of action for a violation of member elections may be brought in either the Superior Court or, if the demand does not exceed the jurisdictional amount of small claims court, in small claims court.
2. Requires a court to void the results of an election upon a finding that the election procedures were not followed, unless the HOA establishes by a preponderance of the evidence that the failure of the HOA to follow this article or the election operating rules were unintentional and did not affect the results of the election.
3. Requires a member to be awarded court costs and reasonable attorney’s fees incurred for consulting an attorney in connection with this civil action if the member prevails in a civil action in small claims court.
4. Prohibits an HOA from filing a civil action regarding a dispute in which a member has requested internal dispute resolution unless the HOA has participated in the specified internal dispute resolution procedure.

COMMENTS

1. Purpose of the bill. The author states that this bill is needed to ensure that voting rights of members living in HOAs are preserved and not treated as a mere privilege and available for use as an enforcement tool. If HOA boards can strip away voting rights of perceived “problem residents,” who may be seeking to unseat them from their position of power, board members can act with frivolity and impunity in silencing dissent. Just as we defend voting rights in local, state, and national elections, we must also do the same in these HOA elections, whose outcomes ultimately control the day-to-day personal lives of the nearly one in five people living in a CID.
2. CID background. A CID is a form of real estate in which each homeowner has an exclusive interest in a unit or lot and a shared or undivided interest in common-area property. Condominiums, planned unit developments, stock cooperatives, community apartments, and many resident-owned mobilehome parks all fall under the umbrella of CIDs. There are more than 50,000 CIDs in California comprising over 4.8 million housing units, or approximately one-quarter of the state’s housing stock. CIDs are governed by HOAs. The Davis-Stirling Common Interest Development Act provides the legal framework under which CIDs are established and operate. In addition to the requirements of the Act, each CID is governed according to the recorded declarations, bylaws, and operating rules of the HOA, collectively referred to as the governing documents.
3. Access to ballot counting and voting. Under existing law, HOAs conduct elections through a paper and mail based balloting system that resembles California’s vote by mail process. The sponsor of this bill, the Center for California Homeowner Association Law (Center), points to examples where homeowners were barred or otherwise discouraged from being near the ballot counting location. Excluding homeowners from the process leads to further distrust between homeowners and the board.

This bill requires notice of the time and location of ballot counting, as well as access to all members or their representatives who want to witness the tabulation.

1. Voter eligibility. Existing law requires HOAs to adopt rules that specify the qualifications for voting. However, existing law does not provide parameters around what qualifications an HOA may impose. As a result, some HOAs place restrictions such as requiring a member to be “in good standing” in order to be eligible to vote. While “good standing” generally refers to being current on payments, an HOA has latitude to define this term more specifically.

This bill prohibits the denial of a ballot to a member, or person with power of attorney, for any reason other than not being a member at the time when ballots are distributed.

1. Candidate eligibility. According to the sponsor, HOAs use the election rules as a means to prohibit a resident member from running in an election. These rules can be used as a means of punishment for members who may have a dispute with the management, or the management finds the resident to be in violation of HOA rules. This tactic can be used to keep specific board members in power and avoid would-be challengers. For example, the sponsor points to a court case involving an HOA that prohibited members from running for the board if they were presently involved in a legal action against the HOA. Other examples include age requirements, living in the HOA for a minimum specified period, being current in assessments, and passing a background check. Existing law allows an HOA to enforce HOA rules in several ways, such as placing a lien on property when a member fails to pay his or her assessment fees. HOAs may also fine, impose disciplinary actions, and sue members for violating HOA rules and governing documents.

This bill prohibits an HOA from disallowing a member from being nominated for any reason other than not being a member, unless that member has been convicted of specified financial crimes. It requires the election rules to provide notice of the procedure and deadline for submitting a nomination, at least 30 days before the deadline. Additionally, this bill requires the notice to include a list of all the candidates’ names that will appear on the ballot.

1. Elections process. While existing law requires HOA boards to adopt election rules, it does not expressly require HOAs to actively notify their members that an election will take place, how members can nominate candidates, and what the election procedures will be. The sponsor points to numerous incidents in which HOA members were left unaware that an election was taking place, and were therefore unable to run for the board or voice an opinion in the governance of the board.

This bill requires HOAs to adopt elections rules at least 90 days prior to an election, to provide general notice of nomination procedures at least 30 days prior to the nominations deadline, and to provide a series of additional notices regarding elections procedures and eligibility at least 30 days before ballots go out.

1. Frequency of elections. Existing law does not directly dictate a timeline for HOA elections. Many HOAs are incorporated as non-profit mutual benefit corporations and thus are covered by existing law that sets the maximum length for a corporate board member’s term at four years. However, some HOAs are not incorporated. The sponsor states that HOA failure to hold elections is one of the biggest complaints it receives.

This bill explicitly requires HOAs to hold an election at the end of each board member’s expiring term, and at minimum every four years.

1. Eligibility of elections inspectors. Existing law requires the HOA to select an independent third party or parties as an inspector of elections. An independent third party may not be a person, business entity, or subdivision of a business entity who is currently employed or under contract to the HOA for any compensable services unless expressly authorized by the HOA. According to the sponsor, HOAs often allow third parties with a vested financial interest in the outcome of an election – such as a vendor with a pending request before the board for a contract with the HOA – to manage the election process, distribute and receive ballots, and count votes.

This bill prohibits third parties from serving as inspectors if they are currently employed or under contract with the HOA for any compensable services.

1. Elections disputes. Existing law requires an HOA to provide a “fair, reasonable, and expeditious procedure for resolving a dispute” between the HOA and a member involving the rights, duties or liabilities under the Davis-Stirling Act or the HOAs governing documents. This procedure is referred to as internal dispute resolution, the purpose of which is to provide a non-judicial forum to resolve disputes between a member and the HOA that will not result in a fee or a charge to the member. Existing law requires parties to attempt to participate in such a process before filing an enforcement action in court. If a member initiates internal dispute resolution, the HOA under existing law must participate in the procedure. According to the sponsor, some HOAs are either not meaningfully participating in this process or are not waiting for its completion before seeking legal action.

This bill requires participation in the internal dispute resolution process before filing any action in court, thus potentially reducing the need to resolve disputes in court.

1. Opposition concerns. The California Association of Community Managers (CACM) and Community Associations Institute (CAI), who represent CIDs, oppose the bill. They state that this bill severely limits an HOA’s ability to impose qualifications on candidates running for an HOA board. This bill would enable directors to serve even if they are delinquent on assessments – an inherent conflict of interest with the responsibilities of the office for which they are running. And while this bill allows an HOA to require a candidate to be current on regular assessments, it requires this qualification be done through bylaw amendments, which can be extremely costly. Opponents also cite a number of privacy concerns with this bill, and disagree with the provision shifting the burden of proof in a civil action to the HOA to prove that an election violation did not occur. Note that some of these concerns are addressed in proposed author’s amendments (see #12 below).
2. Trying again. This bill is almost identical to SB 1265 (Wieckowski, 2018), which was vetoed. (This bill includes an additional provision requiring board elections to be set at the end of each board member’s expiring term and at minimum every four years.) In his veto message, Governor Brown stated that “This bill takes a one-size-fits-all approach, but not all homeowner associations are alike. If changes to an election process are needed, they should be resolved by the members of that specific community.”
3. Author’s amendments. The author proposes a number of amendments to this bill to address opposition concerns but was unable to finalize them prior to the committee deadline. Therefore, the committee will consider them as committee amendments. The amendments:
   1. Delete the access to ballot counting provisions (#1 under “This bill”). This bill requires the HOA election rules to ensure that the meeting at which the ballots are counted is accessible to all members who want to witness the tabulation, and is held at a common area meeting space of HOA property or a location within reasonable distance of the property.

The author proposes to eliminate this entire provision because existing law already requires the inspector of elections to count and tabulate the votes in public at a properly noticed public meeting and requires the tabulated results to be available for review by members. In addition, opponents expressed concerns about the “location within a reasonable distance” provision.

• 1. Reorder elections process provisions (#19-20 under “This bill”). This bill requires the HOA, unless individual notice has been requested, to provide general notice at least 30 days prior to ballots being distributed that includes, among other things, the date and time for ballots to be returned; the date and time of the meeting at which the ballots will be counted; the procedure and deadline for submitting a nomination; the list of names that will appear on the ballot; and the list of voters by name, parcel number, and voting power. It also requires the inspector of elections to correct any errors or omissions to the candidate or voter list within two business days and to convey to each member the ballot and a copy of the election rules, as specified.

The author proposes to reorder and recast these provisions, with one major change: deleting the voter list provisions in the notice requirement and instead requiring the HOA to retain this information in its elections materials, to address opposition concerns about member privacy.

• 1. Revise candidate eligibility provisions (#19-23 under “This bill”). This bill requires or allows an HOA to disqualify an individual from nomination, as specified.

The author proposes to reorder and recast these provisions, with the following changes:

Delete the requirement for an HOA to perform these actions through the bylaws, to address opposition concerns regarding a need for flexibility.

Replace references to “incumbent board director” with “director” because the latter is adequately defined in existing law.

Delete the provision prohibiting an HOA from barring a nominee if the nominee has requested the internal dispute resolution process and the HOA has failed to convene a timely session; they are engaged in the process at the time of the nomination deadline; or the process concludes with a determination that the nominee does not owe a disqualifying debt. According to opponents, this language is duplicative of existing law, which provides comprehensive requirements for “fair, reasonable, and expeditious” internal dispute resolution.

• 1. Revises an elections dispute provision (#16 under “This bill”). This bill requires a court to void the results of an election upon a finding that election procedures were not followed, unless the HOA establishes by a preponderance of the evidence that this failure was unintentional and did not affect the results of the election.

The author proposes to amend this provision to instead require the court to void the results if it finds, by a preponderance of the evidence, that the HOA’s noncompliance affected the results of the election. The amendments retain the requirement for the court to void the results, but remove the burden from the HOA as well as the requirement for the court to find that the violation was unintentional. Opponents expressed concern that shifting the burden of proof in a civil action was unreasonable since the homeowner is bringing the lawsuit.

• 1. Revise the definition of “association election materials.” This bill defines association election materials as returned ballots, signed voter envelopes, a list of parcel numbers and voters to whom ballots were to be sent, proxies, and the candidate registration list. It provides that except for the purposes of this bill, signed voter envelopes may be inspected but shall not be copied.

The author proposes to revise this definition to include the voter list of names (as noted in (b) above). The amendments also remove the exception.

1. Double-referral. This bill was passed by the Judiciary Committee on a 7-0 vote on April 2nd.

Related Legislation:

SB 754 (Moorlach, 2019) — provides that nominees to an HOA board in a CID shall be considered elected by acclamation if the number of nominees does not exceed the number of vacancies on the board. This bill was passed by the Housing Committee on a 10-2 vote on April 22nd and will be heard in Judiciary Committee on April 30th.

SB 1265 (Wieckowski, 2018) – would have made several changes to the elections process held in CIDs, as well as changes to the process for handling disputes between a member and an HOA. This bill was vetoed.

SB 1128 (Roth, 2018) – would have provided that an HOA in a CID may provide a document by electronic means if the recipient has consented by email; reduced the notice requirement of a proposed rule change by the HOA board from 30 days to 28 days; and provided that the nominees to a board shall be considered elected by acclamation if the number of nominees does not exceed the number of vacancies on the board, as specified. The bill was vetoed.

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

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

April 24, 2019.)

SUPPORT:

Center For California Homeowner Association Law (Sponsor)
American Civil Liberties Union Of California
Greater Sacramento Urban League
Non-Profit Housing Association Of Northern California

OPPOSITION:

California Association of Community Managers
Community Associations Institute - California Legislative Action Committee

28 Individuals

-- END --

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: SB 323 (Author:Wieckowski)

Version: February 15, 2019

Hearing Date: April 2, 2019

Fiscal: No

Urgency: No

Consultant: TSG

[Corrected Version*]

SUBJECT

Common interest developments: elections

DIGEST

This bill enacts a series of reforms to the laws governing board of director elections in common interest developments, commonly referred to as homeowners associations or HOAs. In broad strokes, the reforms seek to increase the regularity, fairness, formality, and transparency associated with such elections.

EXECUTIVE SUMMARY

The laws governing HOAs in California set forth the basic ground rules for conducting elections to an HOA board of directors. Beyond these basic ground rules, however, existing law leaves many aspects of the association elections process to the discretion of the association, including the board itself. The proponents of this bill assert that incumbent boards have seized upon this discretion to undermine the democratic function of the elections by, among other things, disqualifying members from running for the board, limiting members’ ability to vote, and rigging the balloting procedures. To prevent such manipulation of the process, this bill would enact a series of reforms to the laws governing HOA elections. Of particular note, the bill would: (1) require that elections take place at regular intervals; (2) prohibit HOAs from disqualifying members from running for the board of directors except on narrow, specified grounds; and (3) restrict HOAs from disenfranchising members.

The bill is sponsored by the California Center for Homeowner Association Law. Support is from proponents of civil and voting rights in the HOA context. Opposition comes from HOA management trade organizations and individual homeowner associations, who object to some specific aspects of the bill and contend, more generally, that the existing elections rules are adequate and provide appropriate flexibility for the wide variety of HOAs that exist in California.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes, within the Davis-Stirling Common Interest Development Act, rules and regulations governing the operation of a residential common interest development (CID) and the respective rights and duties of an HOA and its members. (Civ. Code § 4000 et seq.)
2. Requires association elections regarding assessments legally requiring a vote, election and removal of directors, amendments to the governing documents, or the grant of exclusive use of common area to be held by secret ballot in accordance with specified procedures. (Civ. Code § 5100.)
3. Authorizes associations to specify the qualifications for candidates for the board and any other elected position, and procedures for the nomination of candidates, consistent with the governing documents. (Civ. Code § 5105(a).)
4. Authorizes associations to specify the qualifications for voting, the voting power of each membership, the authenticity, validity, and effect of proxies, and the voting period for elections, including the times at which polls will open and close, consistent with the governing documents. (Civ. Code § 5105(a).)
5. Authorizes associations to specify a method of selecting one or three independent third parties as inspector or inspectors of elections. (Civ. Code § 5105(a).)
6. Requires the HOA to select an independent third party or parties as an inspector of elections. An independent third party may not be a person, business entity or subdivision of a business entity who is currently employed or under contract to the HOA for any compensable services unless expressly authorized by the HOA. (Civ. Code § 5110(a) and (b).)
7. Requires associations to select an independent inspector or inspectors of elections to do the following:
8. determine the number of memberships entitled to vote and the voting power of each;
9. determine the authenticity, validity, and effect of proxies, if any;
10. receive ballots;
11. hear and determine all challenges and questions in any way arising out of or in connection with the right to vote;
12. count and tabulate all votes;
13. determine when the polls shall close, consistent with the governing documents;
14. determine the tabulated results of the election; and
15. perform any acts as may be proper to conduct the election with fairness to all members in accordance with all applicable laws and rules of the association regarding the conduct of the election. (Civ. Code § 5110(c).)
16. Specifies the voting procedure for an association election as follows:
17. ballots and two preaddressed envelopes with instructions on how to return ballots shall be mailed by first-class mail or delivered by the association to every member not less than 30 days prior to the deadline for voting. In order to preserve confidentiality, a voter may not be identified by name, address, lot, parcel, or unit number on the ballot. The association shall use as a model those procedures used by California counties for ensuring confidentiality of vote by mail ballots, including all of the following:
    1. the ballot itself is not signed by the voter, but is inserted into an envelope that is sealed. This envelope is inserted into a second envelope that is sealed. In the upper left hand corner of the second envelope, the voter shall sign the voter’s name, indicate the voter’s name, and indicate the address or separate interest identifier that entitles the voter to vote; and
    2. the second envelope is addressed to the inspector or inspectors of elections, who will be tallying the votes. The envelope may be mailed or delivered by hand to a location specified by the inspector or inspectors of elections. The member may request a receipt for delivery. (Civ. Code § 5115(a).)
18. States that a quorum shall be required only if so stated in the governing documents or other provisions of law. If a quorum is required by the governing documents, each ballot received by the inspector of elections shall be treated as a member present at a meeting for purposes of establishing a quorum. (Civ. Code § 5115(a).)
19. Specifies that except for a meeting to count the votes, an election may be conducted entirely by mail unless otherwise specified in the governing documents. (Civ. Code § 5115(b).)
20. Provides that all votes shall be counted and tabulated by the inspector or inspectors of elections in public at a properly noticed open meeting of the board or members. Any candidate or other member of the association may witness the counting and tabulation of the votes. No person, including a member of the association or an employee of the management company, shall open or otherwise review any ballot prior to the time and place at which the ballots are counted and tabulated. The inspector of elections may verify the member’s information and signature on the outer envelope prior to the meeting at which the ballots are tabulated. Once a secret ballot is received by the inspector of elections, it shall be irrevocable. (Civ. Code § 5120(a).)
21. Provides that the tabulated results of the election shall be promptly reported to the board and shall be recorded in the minutes of the next meeting of the board and shall be available for review by members of the association. (Civ. Code § 5120(b).)
22. Provides that the sealed ballots at all times shall be in the custody of the inspector or inspectors of elections or at a location designated by the inspector or inspectors until after the tabulation of the vote, and until the time allowed for challenging the election has expired, at which time custody shall be transferred to the association. If there is a recount or other challenge to the election process, the inspector or inspectors of elections shall, upon written request, make the ballots available for inspection and review by an association member or the member’s authorized representative. Any recount shall be conducted in a manner that preserves the confidentiality of the vote. (Civ. Code § 5125.)
23. Permits a member of an HOA to bring a civil action against an HOA for declaratory or equitable relief for a violation of the member elections provisions under the Davis-Sterling Act, including, but not limited to, injunctive relief, restitution, or a combination, within one year of the date the cause of action accrues. Upon a finding that the election procedures were not followed, a court may void the results of the election. (Civ. Code § 5145(a).)
24. Permits a prevailing homeowner in a civil action challenging association election proceedings to obtain reasonable attorney’s fees and court costs, and the court may impose a penalty of up to $500 for each violation. (Civ. Code § 5145(b).)
25. Provides that a cause of action with respect to access to association resources by a candidate or member advocating a point of view, the receipt of a ballot by a member, or the counting, tabulation or reporting of, or access to, ballots for inspection and review after tabulation may be brought in small claims court. (Civ. Code § 5145(c).)
26. Requires an HOA to provide a fair, reasonable, and expeditious procedure for resolving a dispute between an HOA and a member, and shall make maximum, reasonable use of available local dispute resolution programs involving a neutral third party, including low-cost mediation programs. The HOA’s internal dispute resolution procedure, invoked by either party to the dispute, shall, at a minimum, satisfy specified requirements. (Civ. Code §§ 5905 and 5910.)
27. Prohibits an HOA or a member from filing an enforcement action in the superior court unless the parties have endeavored to submit their dispute to alternative dispute resolution. This prohibition only applies to an enforcement action that is solely for declaratory, injunctive, or writ relief, or for that relief in conjunction with a claim for monetary damages not in excess of the jurisdictional limits and does not apply to small claims actions or assessment disputes. (Civ. Code § 5930.)

This bill:

1. Requires an HOA to hold elections at least once every four years.
2. Requires an HOA to adopt its election rules at least 90 days before the election.
3. Sets forth the following grounds on which an HOA must disqualify a nominee from becoming a candidate for the board of directors:
4. not being a member of the association at the time of the nomination; or
5. conviction, as defined, of specified felonies involving accepting, giving or offering to give, a bribe, the embezzlement of money, the extortion or theft of money, perjury or conspiracy to commit any of those crimes, within the past 20 years.
6. Sets forth the following grounds on which an HOA may disqualify a nominee from becoming a candidate for the board of directors, provided that the rule is part of the association’s by-laws:
7. all of the following are true:
8. the nominee is not current on the payment of regular assessments, as defined;
9. the nominee has been given the opportunity to engage in an internal dispute resolution process, as specified;
10. the association also requires an incumbent to be current on the payment of regular assessments; and
11. none of the following exceptions apply:
12. the nominee paid the regular assessments under protest;
13. the nominee has entered into a payment plan;
14. the nominee requested internal dispute resolution but the association did not engage in that process in a timely fashion; or
15. the internal dispute resolution process results in a determination that the nominee does not owe a disqualifying debt.
16. the nominee, if elected, would cause a violation of an association by-law prohibiting two or more joint owners of the same HOA parcel from serving on the board simultaneously; or
17. the nominee has been a member of the association for less than one year.
18. This bill would require the HOA election rules to ensure that the meeting at which ballots are counted is:
19. accessible to all members and their representatives who want to witness the tabulation; and
20. held at a common area meeting space of association property or, if none exists, then at a location within a reasonable distance from the property.

1. This bill would require an HOA’s election rules to include provision of general notice, unless individual notice is requested, as follows:
2. at least 30 days before the deadline for nominations:
3. the procedure and deadline for submitting a nomination.
4. at least 30 days before the ballots go out:

i) the date and time by which, and the physical address where, ballots are to be returned by mail or handed to the inspector or inspectors of elections;

• • 1. the date and location of the meeting at which ballots will be counted;
    2. the list of all candidates’ names that will appear on the ballot; and
    3. the list of all voters by name and parcel number, and voting power.

1. This bill would require an HOA’s election rules to mandate the immediate report of any errors or omissions to the list of candidates’ names or list of voters to the inspector or inspectors, with necessary corrections to be made within two business days.
2. Requires an HOA’s election rules to do all of the following:
3. prohibit the denial of a ballot to a member for any reason other than not being a member at the time when ballots are distributed;
4. prohibit the denial of a ballot to a person with power of attorney for a member;
5. require the ballot of a person with power of attorney for a member to be counted if returned in a timely manner; and
6. require the inspector or inspectors of elections to deliver to each member, at least 30 days before an election and by individual delivery or posting to an internet website in the specified fashion, both of the following documents:
7. a copy of the election operating rules; and
8. the ballot or ballots.
9. Prohibits an HOA’s election rules from permitting any person, business, or subdivision of a business entity to serve as the inspector of elections if currently employed or under contract with the HOA for any compensable services other than to serve as an inspector of elections.
10. Adds signed voter envelopes and a candidate registration list to the enumerated items that shall be in the custody of the inspector or inspectors of elections or at a location designated by the inspector or inspectors until after the tabulation of the vote and until the time allowed for challenging the election has expired.
11. Provides that a cause of action for a violation of member elections may be brought within one year of the date that the inspector or inspectors notify the HOA board and membership of the election results or the cause of action accrues, whichever is later.
12. Requires a court to void the results of an election upon a finding that the election procedures were not followed, unless the HOA establishes by a preponderance of the evidence that HOA’s noncompliance with this article or the election operating rules were unintentional and did not affect the results of the election.
13. Requires a court review a cause of action brought under (9) above, to state its findings in writing as part of the record.
14. Requires a member to be awarded court costs and reasonable attorney’s fees incurred for consulting an attorney in connection with this civil action if the member prevails in a civil action in small claims court.
15. Permits a cause of action alleging failing to comply with association election laws or rules in either superior court or, if the amount of the demand does not exceed the jurisdictional amount of the small claims court, in small claims court.
16. Defines “association election materials” to mean returned ballots, signed voter envelopes, a list of parcel numbers and voters to whom ballots were sent, proxies, and the candidate registration list, and adds such materials to the enumerated “association records” to which members are entitled access under specified procedures.
17. Provides that signed voter envelopes may only be inspected, but not copied except for the purposes of member election laws.
18. Prohibits an HOA from filing a civil action regarding a dispute in which a member has requested internal dispute resolution unless the association has engaged in specified internal dispute resolution procedures in good faith.

COMMENTS

1. Background on homeowner association elections

Common interest developments, often referred to as homeowners associations or HOAs, are self-governing groups of dwellings that share common spaces and amenities.^[1] They come in a wide variety of physical layouts: condominium complexes, apartment buildings, and neighborhoods of detached, single-family residences, for example. Some consist of thousands of units. Others are made up of just a handful. Dwellings within common housing developments currently account for approximately a quarter of the state’s overall housing stock, meaning that the laws governing such developments have a large impact on the population. In California, HOAs are primarily governed by the Davis-Stirling Act. (Civ. Code §§ 4000-6150.)

The Davis-Stirling Act sets forth a system for HOA self-governance. The owners of the separate properties within the HOA are the members of the HOA. Association members vote for the board of directors of the association that oversees operation of the HOA.

The board manages the HOA, frequently by hiring an individual or entity – the property manager – to do so on its behalf. The board determines the annual assessments – much like taxes – that members must pay in order to cover communal expenses. The board enforces the community rules and can propose and make changes to those rules. If members do not pay their assessments in full or on time, or if members violate the community rules, the board has the power to fine the members, place liens on the offending member’s property, and, if ultimately necessary, the power to foreclose. This array of responsibilities and powers has led multiple courts to observe that HOAs function in many ways almost “as a second municipal government, regulating many aspects of [the homeowners’] daily lives.” (Villa Milano Homeowners Ass’n v. Il Davorge (2000) 84 Cal.App.4th 819, 836 [citations omitted].)

Much like municipal governments, HOAs use elections to choose members to serve on the association’s board of directors. The Davis-Stirling Act sets forth certain basic ground rules for these elections. (Civ. Code § 5100 et seq.) The HOAs conduct the elections through a paper and mail based balloting system that closely resembles California’s vote-by-mail process. (Civ. Code § 5115.) Beyond these basic ground rules, however, the Davis-Stirling Act leaves many aspects of the association elections process to the discretion of the association, including the board itself. This bill proposes to limit that discretion somewhat, and to alter several aspects of the existing rules in order to promote greater fairness and transparency in the process.

2. Overarching points of disagreement and how the bill evolved to its present form

There is a strong and fundamental divide between the supporters and opponents of this bill, not to mention a certain element of distrust. In general, proponents of the bill believe that there is widespread abuse of the elections process by incumbent HOA boards clinging to power. Opponents believe the existing elections process is sufficiently democratic as it is and that any abuses are isolated. Proponents of the bill assert that much is at stake in HOA elections and that strict rules are needed to ensure democratic procedures. Opponents counter that HOAs boards are frequently volunteer operations and that excessive bureaucracy is oppressive, unrealistic, and expensive. Proponents draw close parallels between the function of local governments and the role of HOA boards. Opponents emphasize that HOAs are private entities based on contractual agreements between community members.

These divergent perspectives played out over the course of the last legislative session during deliberations over SB 1265 (Wieckowski, 2018), the precursor to this bill. The parties tussled over many of the details of SB 1265, hashing out compromises on some points but remaining at loggerheads as to the bill overall. Ultimately, the Legislature passed SB 1265 over the remaining objections of the opponents, but it was vetoed by then Governor Jerry Brown, who criticized what he viewed as the bill’s “one size fits all” approach.

The final form that SB 1265 took is, for the most part, the starting point for this bill. Not surprisingly, therefore, the same proponents and opponents have staked out similar positions to those they held during consideration of SB 1265. The following Comments address the primary arguments on each of the most salient points of contention.

3. Who should be allowed to run for seats on an HOA’s board of directors?

One of the main purposes behind this bill is to greatly reduce the discretion that HOAs otherwise have to impose qualifications on candidates running for the board of directors. Existing law places relatively few restrictions on what associations can do to disqualify candidates and there is anecdotal evidence that boards utilize this discretion to consolidate power.

The experience of one part-time resident in an HOA in Oxnard provides a good example:

In 2016, I decided to run for the board as I felt the interests of absentee owners were being sorely neglected. In short, the board runs the association like a country club for the benefit of a small number of resident owners. They cater to this group and provide funding for their social activities using association funds.

Although my wife and I own this unit, it was titled in her name only for tax purposes. When I discovered that my name needed to be listed as an owner of record in order to serve on the board, we filed a quit claim deed to become joint owners of record. The HOA set up a date of record where none had existed and precluded me from having my name on the ballot since my deed was filed a few minutes beyond their “as of” cut-off time. Their cut-off time was established after I had recorded my deed. I therefore had to run as a write-in candidate.

As it was introduced last year, SB 1265 would have prohibited HOAs from imposing any qualifications on candidates other than that they be a member of the association. Opponents of SB 1265 argued vehemently that at least some candidate qualifications are necessary and healthy for the operation of the community. This Committee recommended adding to SB 1265 an option for HOAs to disqualify board candidates based on failure to pay assessment, provided there were safeguards against abuse of that power.

Based on that recommendation and further work done in the Assembly, SB 323 now bill reflects a delicate and complex middle ground on this issue, though the fact that it represents middle ground should not be taken to mean that all of the stakeholders are satisfied. The bill would create two categories of qualifications for board candidates: one set that all associations must apply, and another set that each association would have the discretion to adopt into its by-laws or not.

In the mandatory category, associations would have to bar candidates who were not members of the association at the time of the nomination or who, within the past 20 years, were convicted of a felony involving bribery, embezzlement, extortion or theft of money, perjury, or conspiracy to commit any of those crimes. In the discretionary category, HOAs could bar candidates that are not current on payment of their regular assessments, candidates that have been a member of the association for less than a year, and candidates whose election would result in having two or more board members from the same separate property within the HOA.

The HOA’s ability to impose these discretionary candidate qualifications would be limited, however. First of all, the discretionary qualifications could only be imposed in the form of by-laws, meaning that they would require a vote by the membership and could not be adopted at the sudden whim of an incumbent board. Second, as to nonpayment of regular assessments, disqualification would be subject to a series of procedural protections and exceptions. Procedurally, an HOA could not disqualify a candidate for nonpayment without first giving the candidate an opportunity to engage in an internal dispute resolution process. In terms of exceptions, a candidate could not be disqualified, even if behind on regular assessments, if the candidate had paid the assessment under protest, if the candidate had entered into a payment plan, if the candidate had been cleared of the allegation of nonpayment through the internal dispute resolution process, or if the candidate had asked for internal dispute resolution but the HOA had not engaged in it by the time the deadline for nominations arrived. As a final protection against potential abuse, the bill is careful to specify that disqualification based on nonpayment only applies to regular assessments and the corresponding accrued interest. Fines and other charges would not count.

Though a bit complex, this structure arguably provides the right balance. HOAs would be able to bar candidates that might compromise the well-being of the community if they were on the board, without giving incumbent boards such unfettered power that they could shut legitimate dissenting voices out of the process. Opponents of the bill, however, continue to believe that it overly restricts the ability of HOAs to disqualify candidates.

4. Who should be allowed to vote in elections for an HOA board?

Existing law requires HOAs to adopt rules that specify the qualifications for voting. (Civ. Code § 5105(a)(4).) However, the law does not provide parameters around what qualifications an association may impose. As a result, some associations place restrictions on who can vote in an association election. For example, there are reports that some associations require members to be in “good standing” in order to vote.

What it means to be a “member in good standing” of an HOA depends on the particular rules of each association, but as a general matter, the phrase refers to being current on all payments due to the association. SB 323 would not allow associations to disqualify members from voting for the board just because they are behind on payments. Instead, the bill would prohibit associations from adopting rules denying members a ballot for any reason other than not being a member at the time when ballots are distributed, thus guaranteeing the broadest possible franchise.

5. How often should elections take place?

Given that the Davis-Stirling Act sets forth fairly elaborate laws governing HOA elections, it is somewhat surprising that existing law does not directly indicate how often such elections must happen. Many HOAs are incorporated as non-profit mutual benefit corporations and, as such, are covered by California law that sets the maximum length for a corporate director’s term in office at four years. (Corp. Code § 7220(a).) Some HOAs are not incorporated in this way, however, and even among those that are, there is anecdotal evidence that many HOAs go for longer periods of time without holding elections. The bill’s sponsor asserts that the failure of HOAs to hold elections is one of the most common complaints it receives from HOA members. To help ensure that HOAs do not let excessive intervals pass between elections, this bill would add a provision to the Davis-Stirling Act requiring HOAs hold elections at least every four years.

While selecting an interval between HOA elections is, by its nature, somewhat arbitrary, requiring HOAs to hold an election for the board of directors at least once every four years aligns with existing rules about director’s terms and helps to ensure that HOA’s democratic practices do not fall by the wayside.

As a technical matter, however, the four-year elections requirement in the current version of the bill may be somewhat confusing. It calls for elections “regarding assessments legally requiring a vote, election and removal of directors, amendments to the governing documents, or the grant of exclusive use of common area” to be held at a minimum every four years. Presumably, the intent behind the bill is that only one of those types of elections – election and removal of directors – would satisfy the requirement, but as the bill is now written, it appears that an HOA could satisfy the requirement by holding an election regarding assessments every four years, without ever holding an election for the board of directors. The author may wish to amend the language in this part of the bill to be sure it achieves the intended effect.

6. Proposed reforms relating to elections procedures and transparency

In addition to limiting the power of associations and incumbent boards to restrict voting and candidacy, this bill also proposes a series of detailed reforms to HOA elections procedures. Some of the more significant or controversial reforms are discussed below. In general, these reforms can be characterized as ensuring notice and increasing transparency in HOA elections. In the process, critics suggest, they create additional expenses and bureaucratic hurdles for associations.

1. Requiring notice of specified election rules and procedures

Existing law requires HOA boards to adopt elections rules. (Civ. Code § 5105(a).) These rules are part of the association’s records and, as such, open to members for inspection and copying upon request. (Civ. Code §§ 4150; 5200(a)(11); and 5205.) Apart from a member’s ability to request to inspect and copy the election rules, however, there does not appear to be anything in existing law that expressly requires associations to actively notify their members that an election will be taking place, how members can nominate candidates, and what the election procedures will be.

Proponents of SB 323 report numerous incidents in which HOA members were left unaware that any election was taking place. As a result, these members could not run for the board or voice much of an opinion in the governance of the association.

SB 323 would require HOAs to adopt elections rules at least 90 days ahead of any election, to provide general notice of the nominating procedures at least 30 days prior to the deadline for nominating candidates to the board, and to provide a series of additional general notices regarding elections procedures and eligibility at least 30 days before ballots go out.

1. Prohibiting financially interested parties from serving as elections inspector

Existing law requires an independent, third party to conduct an association election. (Civ. Code § 5105(a)(5).) The independent third party may be a member, but cannot be a director, a candidate for director, or someone related to a director or candidate. (Civ. Code § 5100(b).) In general, the independent, third party is not supposed to be any person or entity that has business with the association, but under current law, an association can override this general rule, through the adoption of an express rule to the contrary. (Ibid.) Thus, if an association allows it, the current property manager, or another company doing business with the association, can oversee the election. Since such entities may have a financial stake in the outcome of the election, however, there can be a conflict of interest.

SB 323 would eliminate the authority of associations to appoint any person or entity employed or under contract to the association to serve as the elections inspector.

c. Requiring access to the ballot tabulation

Existing law requires the elections inspector to tabulate the ballots in an HOA election. (Civ. Code § 5100(c)(5).) Current law does not address where the tabulation must take place.

SB 323 would fill this gap by requiring the location to be accessible to all members and their representatives, and to be on common association property or, if none exists, reasonably nearby. The bill would also require associations to provide advance notification to members of where the tally will take place.

7. Allowing for inspection of elections documents

Existing law requires an association elections inspector to turn over the ballots to the association once the deadline for challenging an election has expired. (Civ. Code § 5125(a).) Current law does not specify whether those ballots, or the associated envelopes and voter lists, must be made accessible to members for inspection. SB 323 would incorporate these materials into the definition of “association records” that are currently subject to member inspection upon request. This structure builds in the ability for HOAs to redact or withhold records if disclosure is reasonably likely to lead to identity theft, fraud, or compromise of an individual HOA member’s privacy. (Civ. Code § 5215.)

Opponents of this provision of the bill still worry that making this information available to members for inspection could allow it to be used nefariously. In particular, they point out that returned ballots have members’ signatures on them so that, theoretically, people inspecting the ballots could make copies of the signatures and use them to commit fraud. In an apparent nod to this concern, SB 323 says that “[e]xcept for the purposes of this article, signed voter envelopes may be inspected but shall not be copied.”

8. Standard of proof, burden of proof, and award of attorney fees in HOA elections violations cases

Current law enables any association member to bring a civil action to challenge an association election. (Civ. Code § 5145(a).) If the member can show that a violation of the legally required elections procedures took place, then the court may void the election outcome. (Ibid.) In at least one reported case, however, the court initially declined to void the election results, even though it found procedural violations, until the member was able to show that the violation was intentional and that it affected the results of the election. (Wittenberg v. Beachwalk Homeowners Assn. (2013) 217 Cal.App.4th 654.)

SB 323 would still require courts to examine whether a procedural elections violation was intentional and whether it affected the outcome of an election before voiding the result. The bill would, however, shift the burden of proof. Instead of requiring the member to show that the procedural violation was intentional and affected the outcome of the election, SB 323 would require an association to prove that any procedural violation was unintentional and did not affect the outcome of the election. Otherwise, the court would have to void the outcome of the election. Switching the burden in this context arguably makes policy and logical sense. The claim that an HOA’s violation of the election laws did not affect the outcome sounds very much like an affirmative defense, and defendants usually bear the burden of proving an affirmative defense.

SB 323 also addresses the award of attorney’s fees in cases involving a challenge to an association election. Existing law entitles a prevailing HOA member to an attorney’s fees award if the member prevails in an action challenging an association election. (Civ. Code § 5145(b).) SB 323 would specify that such an attorney’s fee award is available even when the action is brought in small claims court.

Whether such an award would be possible under existing law is unclear. Attorneys themselves are not permitted to appear in small claims cases, but small claims litigants can and do consult with attorneys in preparation for representing themselves. The statute regarding small claims judgments is silent regarding the award of attorney’s fees. (Code Civ. Proc. § 1116.610(g)(1).) That silence could be interpreted to endorse the general rule that attorney’s fees may be awarded to the prevailing party where the underlying contract or statute provides for such an award. Alternatively, that silence could be interpreted to mean that attorney’s fees are not available in small claims court. The latter interpretation would seem to gain support from the fact that existing law limits the award of attorney’s fees in small claims appeals (where attorneys can appear) to $150. (Code Civ. Proc. § 116.780(c); Dorsey v. Superior Court (2015) 241 Cal. App. 4th 583.)

If it were to pass, however, SB 323 would be a later enacted statute and would therefore supersede existing law (however interpreted) with regard to the award of attorney’s fees in small claims cases involving challenges to HOA elections.

9. Provisions regarding participation in internal dispute resolution

Existing law requires HOAs to have an internal dispute resolution (IDR) process with specified characteristics, including that if the procedure is invoked by a member, the association must participate in the procedure. (Civ. Code § 5910(c).) The proponents of SB 323 believe that associations are not taking this requirement seriously. Accordingly, SB 323 would add a provision to the law prohibiting an association from filing a civil action in any dispute in which a homeowner has requested IDR, unless the association has engaged in that process in good faith.

10. Proposed amendments

In order to address the issues set forth in the Comments, above, the author proposes to incorporate amendments into the bill that would:

• clarify that the requirement to hold an election at least once every four years relates to board of director elections specifically.

The specific amendments are as follows:

Amendment 1

On page 3, in lines 7 and 8, strike out “at minimum every four years”

Amendment 2

On page 3, in line 9, after “article.” insert:

An election for the board of directors shall be held in accordance with the procedures set forth in this article at the end of each director’s expiring term and at minimum every four years.

11. Arguments in support of the bill

According to the author:

SB 323 will strengthen the democratic governance in California’s over 52,000 homeowner’s associations.

Unfortunately, far too many HOA boards have used arbitrary & unjust rules to maintain their power and control over the association, excluding and disenfranchising other residents who seek to challenge them. Boards manipulate elections by failing to notice an election, failing to deliver ballots to all residents, throwing out valid ballots, and denying access to ballot counting. Sometimes they don’t even hold elections at all.

SB 323 ensures that those holding positions of power over other residents in HOAs properly establish elections rules and adhere to them.

As sponsor of the bill, the Center for California Homeowner Law writes:

The California Appellate courts have ruled repeatedly that associations parallel in almost every way the powers, duties, and responsibilities of local government. The original legislation to create integrity in association elections built on these opinions by stating that “it is the intent of the Legislature to ensure that democratic principles and practices are in place with respect to the governance of common interest developments.” Nowhere in association governance are democratic principles more vital than during elections […]

Unfortunately, since their enactment, the California laws governing association elections have been ignored or violated or undermined […]. SB323 aims to address these abuses.

Elections in California’s 52,000 associations are no small matter. We think SB323 makes it harder for associations to manipulate HOA elections and goes a long way toward restoring confidence in this essential democratic process.

In support, the California Alliance for Retired Americans writes:

Unfortunately, seniors report to us too often how they are denied the right to vote and the right to run for a board seat. Sometimes the obstacles are direct: boards declare that, in order to vote, the senior must not owe any assessments or fines to the association, even if the owner is disputing these alleged debts. In other instances, the barriers are indirect […].

In further support, the Greater Sacramento Urban League writes:

[A]s Director of Housing Programs, I was deeply disturbed when a group of homeowners […] came to our League office asking for help with governance issues. These homeowners are African-American, Pacific Islander, seniors, and the disabled. […] They reported that they have no voice whatever in association decision-making. […] Recently, they were not allowed to vote on a special assessment costing each of them $8-9000 apiece. Payment was forced under threat of having liens recorded against their homes. […] The property manager and board members at that time informed them they had to use the property manager’s company for the repair work even if they could find another contractor to do the same job for less money. These are homeowners who want to participate in the rulemaking and governance of their community, but are being prevented from doing so […].

In further support, the American Civil Liberties Union of California writes:

Homeowner associations have substantial power, and their elections deserve to be correspondingly free and fair.

Additional arguments in support of the bill are discussed in the corresponding Comment, above.

12. Arguments in opposition to the bill

In opposition to the bill, the Community Associations Institute’s California Legislative Action Committee (CAI-CLAC) writes:

As written, SB 323 threatens the privacy of residents, will drastically increase costs faced by these not-for-profit entities and suppress voter participation. […] CAI-CLAC supports fair and open elections. However, absent any evidence current law is insufficient to protect the interests of our members, we cannot support the changes proposed […].

In further opposition to the bill, the California Building Industry Association writes:

[As part of the development process, homebuilders and developers are responsible for creating the homeowner association, and often sit on the HOA as board members until the community is fully built out. They participate as board members to ensure, as dues paying members, that there is sufficient funding for the operations of the HOA and to ensure the rules are enforced so that the association remains aesthetically pleasing.

SB 323 would prohibit anyone who is not a member of the association from serving on the volunteer Board. […] This provision can be interpreted as preventing a developer […] from having any representation on the board of directors […] if that developer is a corporation or a limited liability company developer as the bill does not anticipate a non-natural person as a member.

Additional arguments in support of the bill are discussed in the corresponding Comment, above.

SUPPORT

Center for California Homeowner Association Law (sponsor)
American Civil Liberties Union of California

California Alliance for Retired Americans

Greater Sacramento Urban League

OPPOSITION

California Association of Community Managers

California Building Industry Association

Community Associations Institute’s California Legislative Action Committee

RELATED LEGISLATION

Pending Legislation: SB 754 (Moorlach, 2019) authorizes the board of directors of an HOA to be seated by acclamation if the election is uncontested, as defined, and provides a procedure for an election to be declared uncontested. SB 754 is currently pending consideration before the Senate Committee on Housing.

Prior Legislation:

SB 1128 (Roth, 2018), among a series of changes to the HOA elections and governing procedures, would have allowed for the board of directors to be seated by acclamation, without holding an election, if the number of available seats is equal to or greater than the number of candidates, provided that certain procedures are followed. In his message vetoing SB 1128, then Governor Brown wrote that: “[t]his bill takes a once-size-fits-all approach, but not all homeowner associations are alike. If changes to an election process are needed, they should be resolved by the members of that specific community.”

SB 1265 (Wieckowski, 2018) was nearly identical to this bill. In his message vetoing SB 1128, then Governor Brown wrote that: “[t]his bill takes a once-size-fits-all approach, but not all homeowner associations are alike. If changes to an election process are needed, they should be resolved by the members of that specific community.”

AB 1426 (Irwin, 2017) would have allowed the board of directors of an HOA to be seated by acclamation if the election was uncontested, meaning, among other things, that there are at least as many board seats available as there are candidates. AB 1426 died in the Assembly Committee on Housing and Community Development.

AB 1799 (Mayes, 2016) would have allowed the board of directors of an HOA to be seated by acclamation if the election is uncontested, as defined, and would have provided a procedure for an election to be declared uncontested. In addition, AB 1799 would have ensured a member in good standing who meets specified qualification requirements is not denied the right to vote or the right to be a candidate for director. AB 1799 died in the Senate Committee on Judiciary.

SB 61 (Battin, Ch. 450, Stats. 2005) enacted the basic requirements for conduct of an HOA, including access to association publications for candidates, appointment of an elections inspector, and the methods for conducting balloting.

AB 1098 (Jones, Ch. 458, Stats. 2005) enacted a series of requirements giving HOA members access to inspect and copy HOA records upon request.

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1. The term HOA will be used throughout this analysis. ↑