[Elections; Equal Access] Where a board utilizes HOA media to advocate its point of view regarding an upcoming election, equal access to such media must also be provided to any member advocating a point of view on the issue.
Schiffer & Buus, Eric M. Schiffer and William L. Buus for Plaintiffs and Appellants.
Adams Kessler, Mary E. Gram, Aide C. Ontiveros and Adrian J. Adams for Defendant and Respondent.[657]
OPINION
IKOLA, J.-
Defendant Beachwalk Homeowners Association (association) held an election to amend its bylaws. Plaintiffs Paul Wittenburg and Raymond Dukellis filed suit to void the result of the election, claiming the association’s board of directors (the board) failed to comply with Civil Code section 1363.03, subdivisions (a)(1) and (a)(2). [1] Subdivision (a)(1) governs the use of “association media,” such as a newsletter or Web site, during a campaign. If an association permits any “candidate or member” to advocate a point of view using association media, the association must give members with opposing viewpoints equal access to the same media. Subdivision (a)(2) requires an association to permit free access to common areas for purposes reasonably related to an election. After a bench trial, the court entered judgment for the association, finding it violated neither subdivision.
Plaintiffs contend the court erred in three ways. First, they claim the court erroneously interpreted subdivision (a)(1) as containing an exception permitting the board of directors to advocate a point of view using association media without triggering the equal-access requirement. Second, plaintiffs claim the court erroneously found certain communications, from the board, were merely informational rather than advocacy under subdivision (a)(1). Third, plaintiffs claim there is no substantial evidence supporting the court’s finding that the [658] association did not violate subdivision (a)(2) during the campaign. We agree on all three counts and reverse the judgment.
FACTS
Plaintiffs are individual homeowners and members of the association. The association is governed by a seven-member board of directors who must be members of the association to serve and are elected by a vote of the members of the association.
The present conflict stems from paragraph nine of the association’s Covenants, Conditions and Restrictions (CC&R’s), which states, “no alterations, additions, or improvements, in connection with the common areas of the PRD [Planned Residential Development] shall be made at a cost of more than one thousand dollars ($1,000.00) without the approval of at least two-thirds (2/3) of the voting owners . . . .” In October of 2010 plaintiffs sued the association, claiming the association had removed one pool, and were threatening to remove two more, without obtaining the two-thirds vote required by paragraph nine of the CC&R’s. In November of 2010, the court granted a preliminary injunction preventing the removal of any more pools without obtaining the two-thirds vote required under paragraph nine. We refer to that lawsuit as the “pool litigation.”
Rather than obtain a two-thirds vote to remove the pools, the board instituted a series of elections to amend paragraph nine of the CC&R’s to increase the dollar threshold for requiring a vote, and to reduce the number of votes required to approve expenditures. In November of 2010 the board sent a ballot and cover letter to the homeowners announcing an election to be held in December 2010. The cover letter, which was drafted by board members who supported the amendment, described paragraph nine of the CC&Rs as “over broad, ambiguous, and open to interpretation on many levels.” The board warned, “As long as this subsection of the CC&R’s remains in force, there will be disputes about what constitutes an alteration or an improvement. Additionally, obtaining two-thirds voter approval of every project over $1000 will gridlock our operations and drive up our costs through constant ballots and legal expenses.” Accordingly, the board proposed the following revision to paragraph nine: “The Association shall maintain the common areas and Association-owned assets, except as otherwise provided in the CC&Rs. The spending for operational, maintenance, and repair expenses shall be limited by Section 1366 . . . . Moreover, the Board of Directors may not make capital improvements to the common areas in any one fiscal year in excess of two and one-half percent (2.5%) of the Association’s budgeted gross expenses for [659] that year without the approval of a majority of the membership.” [2] The letter praised this alternative as more flexible and reasonable, while still “a workable method of fiscal restraint.” The letter concluded by warning, “If we don’t take action now to resolve the situation with the CC&Rs, the Association is destined to become further mired in conflict and expensive litigation.” As one board member at trial commented, the letter “is making a strong case” in favor of the amendment and agreed it was “encouraging them to vote yes on Amendment 8.”
Accompanying the letter was a one-page attachment containing a section entitled “Case for amending the CC&Rs,” and another section entitled “Case against amending the CC&Rs.” The document was written by board members who supported the amendment. The board did not ask any opposing members for written input for the “Case against,” but did listen to their arguments at homeowner forums and attempted to incorporate those arguments. The board specifically decided not to include any opposition material.
The board’s proposal generated significant interest in the community. Fliers circulated throughout the community on almost a weekly basis.
Shortly after the board sent out the election materials, a homeowner requested use of the “rental side” of the clubhouse to put on a “town hall meeting” to support other candidates for the board of directors who had a different view than the view expressed by the current board regarding the amendment. The association’s clubhouse is divided between one side available for free and another available for rental. The rentals are handled through the community manager and generally rental requests do not come before the board. The homeowner tendered a check to the community manager for $200 representing the cleaning deposit, believing he did not have to pay the usual $90 rental fee under subdivision (a)(2). Two days later, however, the community manager called the homeowner and stated the board had rejected the request to use the clubhouse for free. Accordingly, the homeowner paid the additional $90 fee. At trial one of the board members in support of the amendment testified the homeowner request never came before the board because it went through the community manager, but also acknowledged the board should have given the homeowner a refund.
In order to pass outright under the CC&R’s, the amendment required a yes vote from 75 percent of the members of the association. The board’s aim, however, was more modest: a yes vote from 50 percent of the members, which would allow the board to file a petition to have the CC&R’s amended [660] under section 1356, subdivision (c)(4). To achieve 50 percent, the board needed 227 yes votes. The December 2010 election fell short of that, garnering 188 yes votes, which amounted to 64 percent of the votes that were cast, but not 50 percent of the total number of association members.
The board scheduled another election for April of 2011. In February of 2011 the board sent ballots and voting materials to all of the members. Included with those materials was a two-page letter regarding the amendment that was nearly identical to the letter sent in connection with the prior election, as well as the same summary of the cases for and against the amendment. The proposed amendment underwent one change: for expenses that would require a vote under the amendment, instead of requiring a 50 percent vote as before, the revised amendment would require a 55 percent vote in favor of the expenditure.
The association had a newsletter that went to all members on a monthly basis. The board exclusively drafted all of the content of the newsletter. In the February 2011 issue of the newsletter, the board included a section entitled “Update on the Proposed 8th Amendment to the Beachwalk CCRs,” which listed a number of arguments in support of the amendment. For example, it asked, “Why is this so important and why does the proposed amendment benefit the community?” It answered by claiming paragraph nine was ambiguous, the proposed alternative was more modern and adaptable, and the amendment would help resolve the pool litigation. It also asked, “What will happen if the 8th amendment does not receive 227 yes votes?” It then listed several consequences, including the lawsuit regarding the pools would “drag on, generating huge legal bills,” any homeowner “with the will and financial resources to sue the” association would do so on the basis of paragraph nine, the association’s insurance rates would go up, otherwise willing homeowners would stop volunteering their time to the association, and operating costs would increase. As a result, the board promised to continue holding elections until the measure passed: “Therefore, we will be asking homeowners to vote on this issue again on the March ballot. And if we cannot get 227 yes votes in March, there will be another ballot on the same issue shortly thereafter.” The article concluded with an exhortation to the members to vote yes on the amendment: “Vote YES on the proposed 8th amendment to our CCRs so we can put our money to use on physically improving Beachwalk.” One of the board members who was in favor of the amendment testified this article was encouraging the homeowners to vote yes. Nonboard members were not invited to provide opposing viewpoints in the newsletter.
Shortly thereafter, a homeowner opposed to the amendment asked to write a response to the board’s newsletter article to be published in the March 2011 issue of the newsletter. The board refused the request because only board members were permitted to publish articles in the newsletter. [661]
At around the same time another homeowner opposed to the amendment requested use of a common area called the “greenbelt” for purposes of a political rally. The request was denied. The community manager explained by e-mail he was unable to obtain unanimous consent from the board, which was required for an action without meeting (which was necessary because no board meeting was scheduled between when the application was filed and the requested date for the rally). The homeowner replied with an angry e-mail decrying a violation of his rights under section 1363.03. The manager’s only response was to say he would pass the homeowner’s concerns on to the board, and he invited the homeowner to resubmit his request at the next regularly scheduled board meeting where a simple majority could approve his request, which was eight days after the date of the proposed political rally. The board members were concerned the homeowner had requested the greenbelt for the entire day, had requested the use of clubhouse tables and chairs, and had not specified the number of people that would attend. But there was no evidence those concerns were expressed to the homeowner, nor was the homeowner told he could resubmit the request with additional details or modifications and be approved prior to the date he had requested.
The association also had a glass-enclosed community bulletin board, which was controlled by the board. The newsletter was posted on the bulletin board, but nonboard members were not permitted to post materials to the bulletin board.
The board also maintained an association Web site. In March of 2011, the board added an update to the pool litigation on the Web site. The update concluded with another exhortation to vote yes on the amendment: “Members are encouraged to vote yes for the 8th Amendment so that the litigation can be resolved expeditiously.” That update was present on the Web site at least through September of 2011. The board would not have allowed nonboard members to post material on the association Web site, nor were members invited to.
Subsequently, in the April 2011 issue of the newsletter, the board included a similar insert describing the ongoing pool litigation and encouraging members to vote in favor of the amendment: “Members are encouraged to vote yes for the 8th Amendment so that the litigation can be resolved expeditiously.”
The April 2011 election likewise failed to receive 227 yes votes, falling short at 219 yes votes.
Shortly thereafter the board scheduled another election regarding the amendment for August 2011. In July the board sent out ballot materials [662] together with a similar cover letter encouraging members to vote yes on the amendment. This time the letter added, “This issue has already gone before the homeowners on two occasions (December 2010 and April 2011). In both cases, the majority of those members who cast ballots voted to amend the CC&Rs; however, neither ballot received the necessary 227 yes votes. Although the [association] is filing a petition with the courts anyway, it is entirely possible the petition will not succeed without the 227 yes votes. Therefore, we must continue to conduct ballots (at a cost of approximately $5000 per ballot) until we can obtain 227 yes votes, or the courts accept the argument that the Beachwalk community suffers from irredeemable voter apathy.”
No opposing homeowners asked to publish articles in the newsletter after the August 2011 election was announced, though two board members in favor of the amendment testified they would have refused such requests. As one of the board members stated, “I believe the policy is one of evenhandedness, no articles for the pro side and no articles for the con side.”
The deadline for returning the ballots was August 15, 2011. On that day, however, the board had not received the ballots of 75 percent of the membership, which was the minimum required to pass the amendment under the CC&R’s, so the board extended voting one week. The amendment ultimately received 258 votes in favor, and 105 against.
Having crossed the 227 vote threshold, the association petitioned the court to amend the CC&R’s. Afterwards, plaintiffs filed the underlying complaint to invalidate the results of the August 2011 election.
Plaintiffs alleged the association violated subdivision (a)(1) by permitting board members to advocate their point of view using association media (thereby triggering the equal-access clause), and then refusing to permit opposing members to utilize the same media to express their point of view. Plaintiffs also claimed they were denied free access to common areas as required by subdivision (a)(2).
After a three day bench trial, the court issued its judgment and statement of decision finding in favor of the association.
First, the court held the association had adopted election rules in 2007 in compliance with section 1363.03. This was based on uncontested evidence showing the association adopted rules in 2007 essentially mirroring the language of section 1363.03. Plaintiffs do not challenge that finding on appeal.
Second, the court held the equal-access requirement of subdivision (a)(1) inapplicable: “The plain language of the statute makes a clear distinction [663] between ‘candidates or members’ advocating a point of view and the ‘association.’ The statute provides by implication that the association, a non-profit corporation which acts through its board [citations], can endorse a candidate or point of view, but mandates that if a candidate or member is given access to the association’s media then all candidates and members advocating a point of view ‘including those not endorsed by the board’ must be given equal access. The weight of the evidence presented establishes that the board authorized and issued the newsletter information in the ‘Breeze’, the pre-election Website information, and the cover letter and other attachments to the ballot materials for the August 22, 2011 election. The court finds that Association, acting through its legally constituted board, used its own media to provide information related to the election and this did not trigger the provisions of [subdivision](a)(1).”[3]
Third, the court held there was no violation of subdivision (a)(2): “There was no persuasive evidence produced to prove that there was any violation of [subdivision ](a)(2) regarding free access to common areas. The weight of the evidence presented establishes that Association allowed access to common area meeting space in Clubhouse #1, in the greenbelt area, and in other open common area space during the campaign for the August 2011 election, at no cost, to all members advocating a point of view, including those not endorsed by the board, for purposes reasonably related to the August 22, 2011 election.” Plaintiffs timely appealed.
DISCUSSION
[1] The Davis-Stirling Common Interest Development Act (the Act) (§ 1350 et seq.) governs homeowner associations. The Act “consolidated the statutory law governing condominiums and other common interest developments . . . . [Citation.] Common interest developments are required to be managed by a homeowners association [citation], defined as ‘a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development’ [citation], which homeowners are generally mandated to join [citation].” (Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 81, fn. omitted; see also That v. Alders Maintenance Assn. (2012) 206 Cal.App.4th 1419, 1425-1426.)
Section 1363.03 governs certain election procedures. The two provisions relevant to this appeal are in subdivision (a)(1) and (2). Those provisions [664] provide, “(a) An association shall adopt rules . . . 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.”
[2] Section 1363.09 subdivision (a) creates a right of action for a violation of subdivision (a)(1) and (2). If a court finds those provisions were violated, it may void the election results or impose civil penalties.
The Court Erred in its Interpretation of Subdivision (a)(1)
Plaintiffs first contend the court erred in interpreting subdivision (a)(1). In particular, plaintiffs contend the court’s board-member exception to the equal-access provision violates both the text and policy of subdivision (a)(1). We review the court’s statutory interpretation de novo (Corrales v. Corrales(2011) 198 Cal.App.4th 221, 226), and we agree the court erred.
[3] The court concluded the board is immune from the equal-access provision. The court reasoned that subdivision (a)(1) does not apply to an association’s use of its own media to endorse a candidate or viewpoint. But the text of subdivision (a)(1) does not support the court’s interpretation. The equal-access provision of subdivision (a)(1) is triggered any time a “member” advocates a point of view using association media. It is undisputed the board members in this case were — indeed had to be — members of the association. Thus, to the extent board members advocated their point of view in association media, whether expressing a personal viewpoint, or the collective viewpoint shared by a majority of the board members, the text of the equal-access provision straightforwardly applies.
The statutory text further undermines the court’s interpretation by stating equal access must be granted to members advocating a point of view “including those not endorsed by the board.” (subd. (a)(1).) This provision demonstrates the Legislature’s particular concern that viewpoints opposing the board be heard. The court’s interpretation turns that concern on its head and ensures the board can utilize association media to the exclusion of viewpoints “not endorsed by the board.” As plaintiffs state in their brief, “If [665] the Court created [a board-member exception], it would allow those in power the advantage of using Association media to advocate a point of view to the exclusion of any opposing view. Such a construction would only further empower those individuals already in power, and would weaken those individuals not in power. Not only would such a construction be fundamentally unfair, but it would facilitate rather than cure the evils intended to be remedied by the statute.” We agree and hold board members are treated as any other member for purposes of subdivision (a)(1). [4]
The association argues, “Common sense dictates that a part of effectively fulfilling the duties owed by the Association includes providing recommendations to members about managing the property, protecting the Association’s financial well-being, and explaining the basis of Board recommendations.” We have no doubt this is so, and nothing about our holding precludes a board from fulfilling that duty. We hold only, that under subdivision (a)(1), while in the midst of an election, the board must either give equal access to opposing viewpoints, or forego the use of association media to advocate its viewpoint.
The Board Engaged in Advocacy
The court further concluded the board’s various communications were merely informational, and not advocacy: “The weight of the evidence presented establishes that the board authorized and issued the newsletter information in the ‘Breeze’, the pre-election Website information, and the cover letter and other attachments to the ballot materials for the August 22, 2011 election. The court finds that [the] Association, acting through its legally constituted board, used its own media to provide information related to the election and this did not trigger the provisions of” subdivision (a)(1). (Italics added.) The court erred.
[4] We are not aware of any cases, nor have the parties cited any, interpreting the term “advocating” as used in subdivision (a)(1). “We begin with the language of the statute. If the text is sufficiently clear to offer conclusive evidence of the statute’s meaning, we need look no further. [Citation.] If it is susceptible of multiple interpretations, however, we will divine the statute’s meaning by turning to a variety of extrinsic sources, including the legislative history [citation], the nature of the overall statutory [666] scheme [citation], and consideration of the sorts of problems the Legislature was attempting to solve when it enacted the statute [citation].” (Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 770.)
[5] Black’s Law Dictionary defines “advocacy” as “[t]he act of pleading for or actively supporting a cause or proposal.” (Black’s Law Dict. (7th ed. 1999) p. 55, col. 2.) And the verb “advocate” is commonly defined to mean “to plead in favor of.” (Merriam-Webster’s Collegiate Dict. (10th ed. 2001) p. 18, col. 1.)
[6] This plain English definition, which we adopt, is consistent with the overall nature and purposes of section 1363.03. Subdivision (a)(1) was part of a bill that sought to “provide substantial new voting protections” to members of homeowner associations designed to “guarantee that basic democratic principles are in place during elections,” which had previously been “contaminated by manipulation, oppression and intimidation of members, as well as outright fraud.” (Assem. Com. on Judiciary, Analysis of Sen. Bill No. 61 (2005-2006 Reg. Sess.) as amended Apr. 12, 2005.) It is thus remedial in nature. “A statute which ‘is remedial in nature and in the public interest is to be liberally construed to the end of fostering its objectives . . . . ‘The rule of law in the construction of remedial statutes requires great liberality, and wherever the meaning is doubtful, it must be so construed as to extend the remedy.”” (People ex rel. Dept. of Transportation v. Muller (1984) 36 Cal.3d 263, 269.) The definition above is sufficiently broad to ensure one side of a debate cannot monopolize the use of association media. [5]
With the proper definition of advocacy in mind, we reject the court’s conclusion that the board’s communications were purely informational and thus not advocacy. Both the association Web site and newsletter contained the statement, “Members are encouraged to vote yes for the 8th Amendment so [667] that the litigation can be resolved expeditiously.” This plainly amounts to advocacy within the meaning of subdivision (a)(1). The cover letter that was sent with each of the election ballot materials, described in detail in the facts section above, likewise advocated for the amendment’s passage. One board member at trial described those letters as “making a strong case” in favor of the amendment and “encouraging them to vote yes on Amendment 8.” Our review of those materials confirms that description.
[7] Having engaged in advocacy, under subdivision (a)(1) the association was bound to permit other members equal access to association media. The undisputed evidence shows the association failed in its duty. On at least one occasion the board outright refused to publish an article in the newsletter opposing an advocacy article the board had published. And though the association nominally enacted rules parroting the language of section 1363.03, it was undisputed at trial that the board’s policy was to not permit homeowners to publish advocacy pieces in the newsletter or the association website, nor to permit homeowners access to the association bulletin board. Accordingly, the association violated subdivision (a)(1).
[8] For the guidance of the trial court, we note, contrary to the apparent assumption of the parties and the court during trial, a violation of subdivision (a)(1) does not automatically void the election results. Section 1363.09, subdivision (a), provides, “Upon a finding that the election procedures of this article . . . were not followed, a court may void any results of the election.” (Italics added.) [9] “Ordinarily, the word ‘may’ connotes a discretionary or permissive act; the word ‘shall’ connotes a mandatory or directory duty.” (Woodbury v. Brown-Dempsey (2003) 108 Cal.App.4th 421, 433.) The legislative history confirms that usage here. An earlier version of the Assembly bill that ultimately added subdivison (a)(1) read, “Upon a finding that the election procedures of this section . . . were not followed, a court shall void the results of the election.” (Assem. Bill No. 1098 (2005-2006 Reg. Sess.) as amended Apr. 11, 2005 § 1, italics omitted.) We conclude the change from “shall” to “may” was intended to grant the court discretion.
The Association Violated Subdivision (a)(2)
[10] Subdivision (a)(2) requires the association to give members free access to common areas “during a campaign” for purposes reasonably related to the election. The court held “[t]here was no persuasive evidence produced to prove that there was any violation of [subdivision ](a)(2) regarding free access to common areas” and that the association “allowed access to common area[s] for the August 2011 election, at no cost, to all members advocating a point of view, including those not endorsed by the board, for purposes [668] reasonably related to the August 22, 2011 election.” Under the unique circumstances of this case, the court erred by too narrowly defining the “campaign” as related solely to the association activities immediately preceding the August 22, 2011 election.
Plaintiffs presented evidence of two instances in which the association allegedly violated this subdivision.
In the first alleged violation, a homeowner attempted to reserve the rental side of the clubhouse at no cost to hold a town hall meeting in connection with the December 2010 election, but the community manager told him the board had rejected the request to use the clubhouse for free. Accordingly, the homeowner paid a $90 fee. At trial one board member testified the homeowner’s request never came before the board because it went through the manager, but also acknowledged she eventually became aware of it and admitted the board should have given the homeowner a refund. The only disputed aspect of this evidence is whether the board explicitly rejected the homeowner’s request or whether the community manager did so independently.
In our view, that dispute makes no difference. The community manager was hired by the association to handle clubhouse reservations on behalf of the association. Regardless of whether this request came before the board, the fact remains that the homeowner requested the free use of a common area for purposes reasonably related to the election, but was denied and told to pay a fee instead. Assuming this event is properly considered a part of the “campaign,” the court’s comment that there was no “persuasive” evidence is unavailing in this context because the evidence is, in relevant part, undisputed.
The second alleged violation occurred when, before the April 2011 election, a homeowner requested the use of a common area known as the “greenbelt” for purposes of a political rally. The request was denied in writing without explanation, other than to invite him to resubmit the request at the next regularly scheduled board meeting, which was eight days after the requested date of the political rally. The board members had concerns that the homeowner had requested the greenbelt for the entire day, rather than a specific time period, and had not specified the number of people that would attend. There was no substantial evidence, however, that such concerns had been expressed to the homeowner, nor was the homeowner told he could resubmit the request with additional details or modifications and be approved prior to the date he had requested. His request was simply denied. Again, assuming this event occurred as part of the “campaign,” the association’s legal obligation under subdivision (a)(2) was to “[e]nsure access to the [669] common area meeting space . . . to all members advocating a point of view . . . for purposes reasonably related to the election.” The board did not fulfill its obligation.
The association does not contest that these events occurred. Instead, it argues they are irrelevant because they occurred in connection with the December 2010 and April 2011 elections, not the August 2011 election, which is the election plaintiffs challenge. The premise underlying the association’s argument is that a violation is only relevant to a single election, after which the association is absolved of any wrongdoing for purposes of future elections.
[11] Subdivision (a)(2) does not explicitly address whether a particular violation may apply to multiple elections in circumstances such as those present here. It simply states access must be granted to common areas “during a campaign . . . for purposes reasonably related to the election.” The issue, therefore, is whether the “campaign” in this case encompassed all three elections or restarted after each election.
As a practical matter, most campaigns will correspond to a single election. In the unique circumstances of this case, however, we hold the campaign to pass the amendment did encompass the December 2010, April 2011, and August 2011 elections. This case is unique because the board threatened to, and did, hold multiple elections in short succession until the amendment passed. Shortly after the December 2010 election failed, the board sent a message to the homeowners in the newsletter articulating arguments in favor of the amendment and stating, “Therefore, we will be asking homeowners to vote on this issue again on the March ballot. And if we cannot get 227 yes votes in March, there will be another ballot on the same issue shortly thereafter.” They did not receive the required votes in the next election, so, true to their word, the board held another election and issued a similar warning: “This issue has already gone before the homeowners on two occasions (December 2010 and April 2011). . . . Although the [association] is filing a petition with the courts anyway, it is entirely possible the petition will not succeed without the 227 yes votes. Therefore, we must continue to conduct ballots (at a cost of approximately $5000 per ballot) until we can obtain 227 yes votes, or the courts accept the argument that the Beachwalk community suffers from irredeemable voter apathy.” (Italics added.) The board itself, therefore, tied the two prior elections to the August 2011 election and threatened to continue holding elections until the Amendment garnered sufficient votes. Under these circumstances, we hold the “campaign” encompassed all three elections. [670]
As noted above, however, we do not hold the court must void the August 2011 results, only that the violations of subdivision (a)(2) described above are relevant and should be considered in deciding whether to void the results of the August 2011 election.
DISPOSITION
The judgment is reversed. Plaintiffs shall recover their costs incurred on appeal.
O’Leary, P.J., and Rylaarsdam, J., concurred.
Respondent’s petition for review by the Supreme Court was denied September 11, 2013, S212545.
[1]. All statutory references are to the Civil Code. References to “subdivision (a)(1)” and “subdivision (a)(2)” are to section 1363.03.
[2]. The parties refer to this as the “8th Amendment” because it would be the eighth amendment to the CC&R’s. For clarity, we simply refer to it as the “amendment.”
[3]. The court also stated, “There was no credible evidence that any member of the Association changed his/her vote because of any information contained in any of the Association’s media or ballot materials.” Both parties agree, however, that this is not a relevant consideration. Thus we do not address it.
[4]. Plaintiffs filed a motion for judicial notice of the Senate bill analysis of Senate Bill 61, which was the bill that introduced subdivision (a)(1) and (2). (Sen. Bill No. 61 (2005-2006 Reg. Sess.).) A motion for judicial notice of published legislative history, such as the Senate Analysis here, is unnecessary. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 45-46, fn. 9.) “Citation to the material is sufficient. [Citation.] We therefore consider the request for judicial notice as a citation to those materials that are published.” (Id. at p. 46, fn. 9.)
[5]. The parties debate whether we should interpret “advocating” as synonymous with “campaigning” as that term is used in the line of cases holding a public entity may not use public funds for “campaigning.” (See, e.g., Stanson v. Mott (1976) 17 Cal.3d 206; Vargas v. City of Salinas (2009) 46 Cal.4th 1.) The Stanson line of cases make a distinction between “campaigning” and “informational” activity. The analogous issue in homeowner association election, i.e. the use of association funds, is governed by section 1363.04, which prohibits the use of association funds “for campaign purposes in connection with any association board election [or] for campaign purposes in connection with any other association election except to the extent necessary to comply with duties of the association imposed by law.” (Id., subd. (a).) But this case is not about the prohibited use of association funds. It is only about the equal access rules found in subdivision (a)(1) and (2) – rules triggered by “advocacy,” not “campaigning.” Thus there is no need to distinguish (or not) between “campaigning” and “informational” activity. It is enough for our purposes to interpret the word “advocacy” and determine under that definition whether the board engaged in “advocacy.”
Related Links
“Equal Access to HOA Media Outlets During Election Campaigns” – Blog post from HOA Lawyer Blog, published 07/29/13
Election Rules
Associations are required to adopt election rules that comply with the requirements set forth in Civil Code Section 5105 in order to conduct any association election that requires the use of secret ballots. (Civ. Code § 5105(a).) To satisfy those requirements, the election rules must:
- Provide Equal Access to Association Media – The election rules must ensure that if any candidate or member advocating a point of view is provided access to association media (i.e., newsletters, websites, etc.) during a complain “for purposes that are reasonable related to that election,” equal access must also 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. (Civ. Code § 5105(a)(1); See also “Equal Access During Campaigns.”) The association may not edit or redact any content from those communications, but may include a statement specifying that the candidate or member is responsible for the content, not the association. (Civ. Code § 5105(a)(1).)
- Provide Access to Common Area Meeting Space – The election rules must ensure access to the association’s common area meeting space (if any exists) during a campaign at no cost, to all candidates (including non-incumbents), and to all members advocating a point of view (including those not endorsed by the board), for purposes reasonably related to the election. (Civ. Code § 5105(a)(2); See also “Equal Access During Campaigns.”)
- Specify Candidate Qualifications – The election rules must specify the qualifications for candidates for the board and any other elected position, consistent with the association’s governing documents. (Civ. Code § 5105(a)(3); See also “Director Qualifications.”)
- Specify Nomination Procedures – The election rules must specify the procedures for the nomination of candidates, consistent with the association’s governing documents. A nomination or election procedure is not reasonable if it disallows any member from nominating himself or herself for election to the board. (Civ. Code § 5105(a)(3); See also “Candidate Nomination.”)
- Specify Qualifications for Voting – The election rules must 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 association’s governing documents. (Civ. Code § 5105(a)(4).)
- Specify Method of Selecting Inspector(s) of Elections – The election rules must specify a method of selecting the association’s inspector(s) of elections, utilizing one of the following methods: (a) appointment of the inspector(s) by the board, (b) election of the inspector(s) by the membership, or (c) any other method for selecting the inspector(s). (Civ. Code § 5105(a)(5); See also “Inspectors of Elections.”)
- Allow Inspector(s) to Appoint/Oversee Additional Persons – The election rules must allow for the inspector(s) of elections 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” within the meaning of Civil Code Section 5110(b). (Civ. Code § 5105(a)(6); See also “Inspectors of Elections.”)
- Require Retention of Voter List and Candidate List as Election Materials – The election rules must require retention of, as association election materials, both a candidate registration list and a voter list. The voter list must include the name, voting power, and either the physical address of the voter’s separate interest, the parcel number, or both. The mailing address for the ballot must 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. The association must permit members to very the accuracy of their individual information at least 30 days before the ballots are distributed. The association or member must report any errors or omissions to either list to the inspector(s) who must make the corrections within two (2) business days. (Civ. Code § 5105(a)(7).)
- Prohibit the Denial of a Ballot to a Member – The election rules must prohibit the denial of a ballot to a member for any reason other than not being a member (an owner of a separate interest within the association) at the time when ballots are distributed. (Civ. Code § 5105(g)(1).)
- Ballots for Persons with a General Power of Attorney – The election rules must prohibit the denial of a ballot to a person with a general power of attorney for a member. The election rules must also require the ballot of a person with a general power of attorney for a member to be counted if returned in a timely manner. (Civ. Code § 5105(g)(2)-(3).)
Delivery of Election Rules with Ballots
The election rules must also require the inspector(s) of election to deliver, or cause to be delivered, at least 30 days before an election: (a) the ballots, and (b) a copy of the election rules. (Civ. Code § 5105(g)(4).)
Election Rules Delivery Methods – Delivery of the election rules as indicated above may be accomplished by individual delivery (e.g., mailing a copy to each member with the ballots) or posting the election rules to an internet website and including the corresponding website address on the ballot together with the phrase, in at least 12-point font:
“The rules governing this election may be found here:”
Candidate Qualifications
The election rules may be used to establish qualifications for candidates for the board as permitted under Civil Code Section 5105(c). (See “Candidate Qualifications.”)
Floor Nominations & Write-Ins
Notwithstanding any other provision of law, the election rules may provide for the nomination of candidates from the floor of membership meetings or nomination by any other matter; those rules may also permit write-in candidates for ballots. (Civ. Code § 5105(b); See also “Candidate Nomination.”)
Adopting & Amending Election Rules
Election rules are “operating rules” within the meaning of Civil Code Section 4355. (Civ. Code § 4355(a)(7).) As such, they may be adopted and amended by the board without membership approval provided that the required amendment procedure mandated by Civil Code Section 4360 is followed (i.e., providing the membership with 28 days notice of a proposed amendment to the election rules). (See “Adopting & Amending Operating Rules.”)
*No Changes to Election Rules within 90 Days of an Election –Election rules may not be changed less than ninety (90) days prior to an election. (Civ. Code § 5105(h).)
Related Links
The New State of HOA Election Laws – Article published by Tinnelly Law Group
Inspectors of Elections
When an association’s election requires the use of secret ballots in accordance with Civil Code Section 5100, an association is required to “select an independent third party or parties as an inspector of elections.” (Civ. Code § 5110(a).) The number of inspector(s) must either be one (1) or three (3). (Civ. Code § 5110(a).)
“Independent Third Party” Defined
An independent third party allowed to serve as an association’s inspector of elections includes, but is not limited to, the following: (Civ. Code § 5110(b))
- A volunteer poll worker with the county registrar of voters;
- A licensee of the California Board of Accountancy (CBA);
- A notary public; or
- A member of the association, provided that the member is not a director, a candidate for director, or related to a director or to a candidate for director.
Professionals – an independent third party allowed to serve as an association’s inspector of election may not include any “person, business entity, or subdivision of a business entity who is currently employed or under contract to the association for any compensable service other than serving as inspector of elections.” (Civ. Code § 5110(b).)
Prohibited Persons – as referenced above, an association’s inspector of elections may not include any person who is a member of the board, a candidate for the board, or related to a member of the board or a candidate for the board, nor may it include any person or business entity that is employed or under contract with the association for any service other than serving as inspector of elections. (Civ. Code § 5110(b).)
Selection Methods
The association’s election rules must specify a method for selecting one (1) or three (3) independent third parties as inspector(s) of elections utilizing one of the following methods:
- Appointment of the inspector(s) by the board; (Civ. Code § 5105(a)(5)(A))
- Election of the inspector(s) by the members of the association; (Civ. Code § 5105(a)(5)(B)) or
- Any other method for selecting the inspector(s). (Civ. Code § 5105(a)(5)(C).)
Most associations utilize the first method (appointment by board) for the selection of its inspector(s) of elections.
Additional Persons Assisting Inspector(s) – The association’s election rules must also allow the inspector(s) to appoint and oversee additional persons to verify signatures and to count and tabulate votes as the inspector(s) deem appropriate, provided that the persons are also independent third parties in accordance with the above. (Civ. Code § 5105(a)(6).)
Duties of Inspectors
An association’s inspector(s) of elections are required to do all of the following: (Civ. Code § 5110(c))
- Determine the number of memberships entitled to vote and the voting power of each;
- Determine the authenticity, validity, and effect of proxies, if any;
- Receive ballots;
- Hear and determine all challenges and questions in any way arising out of or in connection with the right to vote;
- Count and tabulate all votes;
- Determine when the polls shall close, consistent with the governing documents;
- Determine the tabulated results of the election;
- Perform any acts as may be proper to conduct the election with fairness to all members in accordance with the required secret balloting procedures, the Corporations Code, and all applicable election rules of the association.
All of the above must be performed “impartially, in good faith, to the best of the inspector of election’s ability, as expeditiously as practical, and in a manner that protects the interests of all members of the association.” (Civ. Code § 5110(d).)
Correction of Errors on Candidate List and Voter List
If a member or the association reports an error on the voter list or candidate list to the inspector of elections, the inspector must make the corrections within two (2) business days. (Civ. Code § 5105(a)(7).)
Decisions & Reports
If there are three (3) inspectors of elections, the decision or act of a majority of the inspectors is effective “in all respects” as the decision or act of all the inspectors. (Civ. Code § 5110(d).) Any report made by the inspector(s) is prima facie evidence of the facts stated in the report. (Civ. Code § 5110(d).)
Custody of Ballots, Envelopes, Voter List & Candidate List
The sealed ballots, signed voter envelopes, voter list, and candidate list must at all times be in the custody of the association’s inspector(s) of election or at a location designated by the inspector(s) of elections until after the tabulation of the vote, and until the time allowed by Civil Code Section 5145 for challenging the election has expired (one year). (Civ. Code § 5125; See also “Legal Challenge to Election.”) Once that time has expired, the custody of the ballots must be transferred from the inspector(s) of elections to the association. (Civ. Code § 5125.) If there is a recount or other challenge to the election process, the inspector(s) of elections must, upon written request, make the ballots available for inspection and review by any member of the association or the member’s authorized representative. (Civ. Code § 5125; See also “Inspection of Ballots.”)
Related Links
The New State of HOA Election Laws – Article published by Tinnelly Law Group
Election Entirely by Mail
Unless otherwise specified in an association’s governing documents, an election may be conducted entirely by mail. (Civ. Code § 5115(d).) Corporations Code Section 7513 allows for any action which may be taken at a membership meeting to be taken without a meeting provided that:
- Written Ballots are Distributed – the association distributes a written ballot to every member entitled to vote on the matter; (Corp. Code § 7513(a).)
- Proposed Action Specified – the ballot sets forth the proposed action to be voted on; (Corp. Code § 7513(a).)
- Opportunity to Specify Approval or Disapproval – the ballot provides an opportunity for the voter to specify the voter’s approval or disapproval of any proposed action; (Corp. Code § 7513(a).)
- Reasonable Time to Return Ballot – the ballot provides a reasonable time within which to return the ballot to the association; (Corp. Code § 7513(a).) (Note* – at least thirty (30) days of balloting must be provided pursuant to Civil Code Section 5115(a).)
- Number of Responses Needed to Meet Quorum – the ballot must indicate the number of responses needed to meet the applicable quorum requirement; (Corp. Code § 7513(c).)
- Percentage of Approval Needed to Pass the Measure – except for elections of directors, the ballot must state percentage of approvals necessary to pass the measure being voted on; (Corp. Code § 7513(c).) and
- Deadline to Return Ballot – the ballot must specify the time by which the ballot must be received in order to be counted. (Corp. Code § 7513(c).)
Quorum & Approval Requirements
Approval by written ballot is valid only when the number of votes cast by ballot within the required time period equals or exceeds the quorum required to be present at a meeting authorizing the action, and the number of approvals must equal or exceed the number of votes that would be required to approve at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot. (Corp. Code § 7513(b).)
Additional Balloting & Election Requirements
There are also other procedures and requirements which must be satisfied in connection with the election (i.e., the use of secret ballots with two (2) sealed envelopes, conducting the election in accordance with written election rules, etc.) and, even where an election may be conducted entirely by mail, a noticed meeting of the members or the board must still be held in order to count the ballots and tabulate the votes. (See “Balloting Requirements & Procedures.”)
Balloting Requirements & Procedures
Where a matter to be voted on by the association’s members requires the use of a secret ballot, the following balloting procedures must be utilized in order to preserve the confidentiality of the vote and to comply with other legal requirements contained in the Davis-Stirling Act:
Ballot with 2 Preaddressed Envelopes
Ballots and two (2) preaddressed envelopes must be mailed by first class mail or delivered by the association to every member not less than thirty (30) days prior to the deadline for voting. Instructions on how a member may return his/her ballot must also be included. (Civ. Code § 5115(a).)
- First Sealed Envelope – The ballot itself is not signed by the voter, but is inserted into the first envelope that is sealed. (Civ. Code § 5115(a)(1).)
- Second Signed & Sealed Envelope – the first sealed envelope is inserted into a second envelope that is sealed. In the upper left hand corner of the second envelope, the voter must sign and indicate the voter’s name, as well as indicate the address or separate interest identifier that entitles the voter to vote. (Civ. Code § 5115(a)(1).) The second envelope is addressed to the association’s inspector(s) of elections who ultimately tabulates the votes. (Civ. Code § 5115(a)(2).) The envelope may be mailed or delivered by hand to a location specified by the inspector(s) of elections, and the member may request a receipt for delivery. (Civ. Code § 5115(a)(2).)
Proposed Governing Document Amendment
If the vote is being conducted to approve amendments of the association’s governing documents (i.e., a CC&R amendment), the text of the proposed amendments must be delivered to the members with the ballot. (Civ. Code § 5115(g).)
Quorum
If a quorum is required by the governing documents, each ballot received by the inspector(s) of elections must be treated as a member present at a meeting for purposes of establishing quorum. (Civ. Code § 5115(b).)
Counting Ballots & Tabulating Votes
Meeting Required – Even if the election is being conducted entirely by mail, all ballots must be counted and tabulated by the association’s inspector(s) of elections, or by the designee of the inspector(s) of elections, in public at a properly noticed open board meeting or membership meeting. (Civ. Code § 5120(a).) No person, member of the association, or employee of the association’s management company may open or otherwise review any ballot prior to the time and place where the ballots are being counted and tabulated. (Civ. Code § 5120(a).) The inspector(s) of elections, or the designee of the inspector(s) of elections, may verify the member’s information and signature on the outer envelope prior to the meeting where the ballots will be counted. (Civ. Code § 5120(a).)
Observing the Counting – Any candidate or member of the association may witness the counting of the ballots and tabulation of the votes. (Civ. Code § 5120(a).)
Ballots are Irrevocable
Once a secret ballot is received by the association’s inspector(s) of election, the ballot is irrevocable. (Civ. Code § 5120(a).)
Reporting Results
Once the votes are counted, the tabulated results must: (Civ. Code § 5120(b).)
- Be promptly reported to the board;
- Recorded in the minutes of the next board meeting; and
- Be available for review by the association’s members.
Within fifteen (15) days of the election, the board must also give general notice of the tabulated results. (Civ. Code § 5120(b).)
Custody of Ballots
The sealed ballots must at all times be in the custody of the association’s inspector(s) of election or at a location designated by the inspector(s) of elections until after the tabulation of the vote, and until the time allowed by Civil Code Section 5145 for challenging the election has expired (one year). (Civ. Code § 5125; See also “Legal Challenge to Election.”) Once that time has expired, the custody of the ballots must be transferred from the inspector(s) of elections to the association. (Civ. Code § 5125.) If there is a recount or other challenge to the election process, the inspector(s) of elections must, upon written request, make the ballots available for inspection and review by any member of the association or the member’s authorized representative. (Civ. Code § 5125; See also “Inspection of Ballots.”)
Related Links
The New State of HOA Election Laws – Article published by Tinnelly Law Group
Elections Requiring Secret Ballots
Notwithstanding any other law or provisions in an association’s governing documents, the following matters must be voted on by secret ballot in accordance with the procedures set forth in Civil Code Section 5100 et. seq.:
-
- Elections Regarding Assessments Legally Requiring a Membership Vote – this would include actions to increase regular assessments over twenty percent (20%) or to levy a special assessment over five percent (5%) of the association’s annual budget. (Civ. Code § 5100(a); See also “Limitations on Assessment Increases.”)
- Election and Removal of Directors – a membership vote to either elect directors or to remove (recall) them from the board. (Civ. Code § 5100(a); See also “Removal & Recall of Directors.”)
Uncontested Elections (Elections by Acclamation) – Avoiding the use of secret ballots is possible in an uncontested director election. (Civ. Code § 5103(g); See also “Uncontested Elections (Elections by Acclamation)“.)
- Amendments to the Governing Documents – this would include a membership vote to approve a proposed amendment to the association’s governing documents (i.e., to amend the CC&Rs), as well as to reverse (veto) a recent rule change. (Civ. Code § 5100(a).)
- Grant of Exclusive Use of Common Area – this would include actions where membership approval is required to grant any member the exclusive use of any portion of the association’s common area. (Civ. Code § 5100(a); See also “Granting Exclusive Use of Common Area.”)
Where the use of secret ballots is required, Civil Code Sections 5105 through 5145 set forth numerous procedural requirements governing the balloting and voting process which must be utilized. For more information, see “Balloting Requirements & Procedures.”
Special Meetings of Members
Special meetings of an association’s members may be called for “any lawful purpose” by: (Corp.Code § 7510(e).)
- The board;
- The president of the association;
- Those designated under the association’s bylaws; or
- A petition of five percent (5%) or more of the association’s members.
Meeting Called by Petition
If a meeting of the members is called by a petition signed by the required minimum number of members (at least 5%), the purpose of the special meeting must be set forth in the petition in order to indicate the basis for the requested special meeting (i.e., if the special meeting is to reverse a recent change to the association’s operating rules), as well as to demonstrate that the meeting is being called for a “lawful purpose” in accordance with Corporations Code Section 7510(e).
Date of the Special Meeting
The date of the special meeting is set by the board and may not be less than thirty-five (35) nor more than one hundred and fifty (150) days from receipt of the request/petition. (Corp. Code § 7511(c).)
Notice of the Special Meeting
The board has twenty (20) days from receipt of the petition to set the date of the special meeting and to provide notice of the meeting. (Corp. Code § 7511(c).) Corporations Code Section 7511(a) generally requires the notice of meeting to be given to all members no less than ten (10) and no more than ninety (90) days before the date of the meeting. However, this 10-day minimum notice requirement is modified if the purpose of the meeting requires the use of secret ballots in accordance with Civil Code Section 5100 (i.e., if the purpose of the meeting is to conduct a vote to remove (recall) the board). In such cases, because Civil Code Section 5115 requires at least thirty (30) days of balloting, along with the solicitation and publication of a candidate list for at least thirty (30) days prior to balloting, the meeting date must take place several months from the date the notice of meeting is delivered to the members (not 10 days). (See “Balloting Requirements & Procedures.”)
Business Constrained by Notice
The notice of meeting must state the place, date and time of the meeting, as well as the “general nature of the business to be transacted” at the meeting. (Corp. Code § 7511(a).) No other business may be transacted at the meeting except for that which was stated in the notice. (Corp. Code § 7511(a).)
Method of Notice
Pursuant to Corporations Code Section 7511(b), notice may be given by any of the following methods:
- personally,
- electronically, or
- by mail or other means of written communication addressed to a member at the address of the member appearing on the books of the association or given by the member to the association for purpose of notice.
Failure to Provide Notice
If the board fails to provide notice of the special meeting, “the persons entitled to call the meeting may give the notice…after notice to the [association] giving it an opportunity to be heard.” (Corp. Code § 7511(c).) However, there is no law which grants such persons the right to also distribute ballots or select an inspector of elections—actions which are required to legally hold the meeting and conduct the vote. Those actions may only be performed by the board (or the board acting on behalf of the association). (See Civ. Code §§ 5105, 5115; See also “Inspectors of Elections.”)
Court Ordered Notice
If, upon receipt of a valid petition, the board fails to set a date for the meeting and provide notice to the members, the petitioners are permitted to obtain court orders designating the time and place of the meeting, the form of notice, and any other orders “as may be appropriate.” (Corp. Code § 7511(c).)
Related Links
Court Steps in to Force Recalled HOA Board to Step Down
-Published on HOA Lawyer Blog (July, 2023)
Annual Meetings of Members
Annual Meeting Required
Every year, an association is required under its bylaws or CC&Rs to hold an annual meeting of its members for the purpose of electing directors to the association’s board. The association’s bylaws typically contain provisions governing the date, time, location, quorum requirements and the manner in which the annual meeting of the members is to be conducted. In the absence of such language, Corporations Code Section 7510 provides default provisions with respect to annual meetings. Specifically, Section 7510 provides that, when the location for the annual meeting of the members is not stated in the bylaws, the meeting shall be held at the principal executive office of the association, and “in each year in which directors are to be elected.” (Corp. Code § 7510(b).)
Failure to Hold Annual Meeting
If an association fails to meet within sixty (60) days of the date designated for the annual meeting, or, if no date has been designated, within fifteen (15) months after the formation of the association or its last regular meeting, a member may, after notice and opportunity to be heard, petition the superior court for an order establishing a date and time for a meeting. (Corp. Code § 7510(c).)
Directors Continue to Serve
If an annual meeting is not conducted and/or is unable to take place due to a lack of quorum, the directors then in office generally continue to serve on the board until successors have been formally elected and qualified. (Corp. Code § 7220(b).)
Quorum Requirements
“Quorum” is the minimum number of member votes required before the association may engage in business at the annual meeting. With respect to voting, Civil Code Section 5115(b) provides that a “quorum shall be required only if so stated in the governing documents or other provisions of law.” If the governing documents require a quorum but do not state the quorum amount, and unless otherwise provided for by the association’s bylaws or other provisions of law, one-third (1/3) of the voting power of the association, represented in person or by proxy, constitutes a quorum. (Corp. Code § 7512(a); See also “Member Quorum Requirements” and “Failure to Achieve Quorum.”)
Continuation of Annual Meeting
In the event the association does not achieve quorum, “the chair calls the meeting to order, announces the absence of a quorum, and entertains a motion to adjourn” the meeting until a later date. (Robert’s Rules, 11th ed., p. 349.) The time period for adjournment is typically found in the association’s bylaws. Unless stated otherwise in the bylaws, when a meeting is adjourned and continued, notice of the continued meeting need not be given if the date and time of the continued meeting was announced prior to the adjournment. If no date and time was announced, the board must provide notice to the membership. In any event, no meeting may be continued for more than forty-five (45) days. (Corp. Code § 7511(d); See also “Failure to Achieve Quorum.”)
Transfer Fees
With the exception of certain entities that qualify under Civil Code Section 4580, an association may not impose or collect any assessment, penalty, or fee in connection with the transfer of title of any property within the association’s development. (Civ. Code § 4575.)
*Exception – Actual Costs & Escrow Document Fees
Notwithstanding the above, an association is permitted to charge the following fees and costs in connection with the transfer of title of a property within the association’s development:
- An amount which does not exceed the association’s actual costs to change its records. (Civ. Code § 4575(a).)
- An amount authorized by Civil Code Section 4530. (Civ. Code § 4575(b).) Those fees and costs relate to the various documents that an association must compile and deliver to a seller in order for the seller to provide them to a prospective purchaser of the seller’s property pursuant to Civil Code Section 4525. (See “Transfer Disclosures & Escrow Documents.”)
Deed-based Transfer Fees
The foregoing does not apply to a “transfer fee” as defined under Civil Code Section 1098. Such transfer fees are not imposed by an association, but are “imposed within a covenant, restriction, or condition contained in any deed, contract, security instrument, or other document affecting the transfer or sale of, or any interest in, real property that requires a fee be paid as a result of transfer of the real property.” (Civ. Code § 1098.) The requirement to pay such a transfer fee is often recorded by a CID’s developer at the inception of the CID within each of the owner’s respective deeds.
Transfer Disclosures & Escrow Documents
Seller’s Duty to Disclose Information
Civil Code Section 4525 requires an owner of a property within an association to provide various items of information and documents to a prospective purchaser of the owner’s property “as soon as practicable before the transfer of title or the execution of a real property sales contract.” (Civ. Code § 4525(a).) Because the association is not a party to the transaction between the owner and the prospective purchaser, the association has no general duty to disclose information to the prospective purchaser:
“The Association cannot be expected to make disclosures so as to impart information in relation to every possible sale of a unit within the development. Were there such a requirement, the Association’s time could be consumed with the preparation of disclosure statements. Any such rule would also render redundant the procedure of annual reports, meetings, and the disclosures of budgets established by statute.” (Ostayan v. Nordoff Townhomes HOA (2003) 110 Cal.App.4th 120, 130).
However, in order for the owner/seller to provide the prospective purchaser with the required documents, the association is obligated to furnish those documents to the seller upon the seller’s written request for the same (discussed further, below).
Additional Duty to Disclose Defect-Related Information – In addition to the documents and information which must be provided under Section 4525, Civil Code Section 4535 places additional duties upon an owner/seller to disclose defect-related information to a prospective purchaser required under Civil Code Section 1134. Before the transfer of title, the seller must deliver to the prospective purchaser a written statement listing all substantial defects or malfunctions in the major systems in the unit and common areas, or a written statement disclaiming knowledge of any such substantial defects or malfunctions. (Civ. Code § 1134(a).) “Major systems” includes, but is not limited to, the roof, walls, floors, heating, air conditioning, plumbing, electrical systems or components of a similar or comparable nature, and recreational facilities. (Civ. Code § 1134(c).) Failure to make such disclosures prior to the execution of the purchase agreement gives the purchaser the right to terminate the agreement within specified timelines. (Civ. Code § 1134(b).)
Association’s Obligations to Provide Requested Documents
Upon written request from an owner, an association is required to, within ten (10) days of the mailing or delivery of the request, provide the owner (or the owner’s authorized recipient) a copy of all the requested documents specified under Civil Code Section 4525. (Civ. Code § 4530(a)(1).) Those documents include copies of the association’s governing documents, financial statement review, annual budget report, statements regarding rental restrictions, etc. (See Civ. Code § 4525 and 4528.)
The required documents may be maintained in electronic form, and may be posted on the association’s web site. (Civ. Code § 4530(a)(2).) An association is not permitted to withhold delivery of the documents for any reason nor subject to any condition except for the owner’s payment of the fees authorized by Civil Code Section 4530(b) (discussed below). An association may contract with any person or entity to facilitate the production and distribution of the requested documents (i.e., its management company). (Civ. Code § 4530(c); See also Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544.)
Statutory Form: Civil Code § 4528 – The documents required under Civil Code Section 4525 are itemized in the form required under Civil Code Section 4528 (“4528 Form”). The 4528 Form is then completed by the association in order to show what documents are being provided as well as the association’s fees to be charged in providing those documents.
Fees Charged by the Association
- Allowable Fees – An association is permitted to collect a reasonable fee based upon the association’s actual costs for procuring, preparing, reproducing and delivering the requested documents, but is not permitted to charge additional fees for delivering the documents electronically. (Civ. Code § 4530(b)(1).) The association’s costs may include fees charged by the association’s managing agent for the production of the documents. (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544.)
- Seller’s Obligation to Pay – The seller is required to compensate the association for providing the requested documents to the prospective purchaser. (Civ. Code § 5300(b)(8).)
- Estimate Required – A written or electronic estimate of the fees that will be charged by the association must be set forth on the 4528 Form. (Civ. Code § 4530(b)(2).)
- Fees for Cancelled Request – If the request for documents is cancelled in writing by the same party that placed the order, the association may only charge a cancellation fee if the association had already began working on the request and has not been compensated for the work it already performed. (Civ. Code § 4530(b)(3)(A).) The association is required to refund all previously collected fees reflecting work which has not yet been performed. (Civ. Code § 4530(b)(3)(B)-(C).)
- Separate from Other Fees, Fines & Assessments – Any fees charged by the association for documents must be distinguished from other fees, fines or assessments billed as part of the property transfer or sales transaction. (Civ. Code § 4530(b)(4).)
- Documents in Seller’s Possession – If the seller is already in possession of current copies of any of the requested documents, the seller must provide them to the prospective purchaser at no cost. (Civ. Code § 4530(b)(6).)
Violations of Disclosure Requirements
Any person who willfully violates the above requirements is liable to the purchaser of the property for actual damages and is further required to pay a civil penalty in an amount not to exceed five hundred dollars ($500). (Civ. Code § 4540.) In an action to enforce this liability, the prevailing party is entitled to an award of his/her reasonable attorney’s fees. (Civ. Code § 4540.)