All posts by Steve Tinnelly

Declaration (CC&Rs)

An association’s “Declaration of Covenants, Conditions and Restrictions” (“declaration” or “CC&Rs”) is a recorded document setting forth the majority of the powers, rights and responsibilities of the association and its members. CC&Rs generally contain provisions addressing:

The restrictions contained in the CC&Rs are considered “an inherent part of any common interest development and are crucial to the stabled, planned environment of any shared ownership arrangement.” (Nahrstedt v. Lakeside Village (1994) 8 Cal. 4th 361, 372.)

Application of CC&Rs; Equitable Servitudes
A developer creates and records CC&Rs as “equitable servitudes” against each of the separate interests within the common interest development (“CID”). Equitable servitudes are essentially contractual restrictions on the use of land which are legally binding on current and future property owners. (Civ. Code § 5975.) The restrictions contained in  CC&Rs are “clothed with a very strong presumption of validity which arises from the fact that each individual unit owner purchases his unit knowing of and accepting the restrictions to be imposed.” (Villa de Las Palmas HOA v. Terifaj (2004) 33 Cal.4th 73, 90.)

Enforcement
CC&Rs are enforceable unless they are unreasonable. (Civ. Code § 5975.) Reasonableness is determined by reference to the CID as a whole, not just the facts underlying the individual opposing homeowner (i.e., courts determine whether the CC&Rs are reasonable as applied to the particular CID in its entirety, not just their application to a particular set of facts surrounding an individual homeowner’s objection). (Nahrstedt v. Lakeside Village Condo Assn. (1994) 8 Cal.4th 361.) Courts will enforce an association’s CC&Rs unless they “are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use affected land that far outweighs any benefit.” (Nahrstedt at 382.)

Similarly, the association may not enforce the CC&Rs in such a way “that would violate statutory or common law.” (Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 499 fn. 6.). “Enforcement of [CC&Rs] must be in good faith, not arbitrary or capricious, and by procedures which are fair and uniformly applied.” (Liebler v. Point Loma Tennis Club (1995) 40 Cal.App. 4th 1600, 1610.)

Both the association and its individual owners/members have the right to enforce the CC&Rs. (Civ. Code § 5975.) However, the association’s board of directors is afforded some discretion with regard to the decisions it makes in enforcing the CC&Rs on behalf of the association. (See “Duty to Enforce.”)

Interpretation & Amendment
The restrictions set forth in the CC&Rs may not be clear and may become ambiguous in light of changing circumstances within the CID over time. Civil Code Section 4215 therefore provides for the “liberal construction” of CC&Rs. Liberal construction allows for the CC&Rs to be interpreted in a way which serves “to facilitate the operation of the common interest development.” (Civ. Code § 4215.)

Associations may choose to formally amend and restate their CC&Rs to reflect changes in the law, to address circumstances in the CID that may not have existed when it was developed, or to modify the rights and responsibilities of the association and its members.

Veto of Rule Change by Members

An association’s operating rules are adopted and amended at the discretion of board pursuant to the procedural requirements under Civil Code Section 4360.  However, Civil Code Section 4365 grants the association’s members with a limited right to reverse (veto) a recently enacted rule change as follows:

  1. Special Meeting of the Members. Members owning five percent (5%) or more of the separate interests may call a special meeting of the members to reverse a rule change. (Civ. Code § 4365(a).)
  2. Written Request Delivered to Association. The special meeting of the members to reverse a rule change may be called by delivering a written request to the association. The written request must be delivered to the association within thirty (30) days after the association gives general notice of the rule change. The association must hold the special meeting not less than thirty-five (35) and no more than ninety (90) days after receipt of a proper request. (Civ. Code § 4365(b).)
  3.  Voting & Balloting Requirements. The vote at the special meeting must be conducted in accordance with the secret balloting requirements under Article 4 (commencing with Civil Code Section 5100) of Chapter 6. (Civ. Code § 4365(b).) The rule change may be reversed by the affirmative vote of a majority of a the members at the special meeting where quorum is present, or by a greater percentage if required under the association’s CC&Rs or bylaws. (Civ. Code § 4365(d).)
  4. Notice of Voting Results. As soon as possible after the close of voting, but not more than fifteen (15) days after the close of voting, the board must provide general notice of the results of the member vote. (Civ. Code § 4365(g).)

Impact of Rule Reversal
Where a rule is successfully reversed by the members, that rule may not be re-adopted by the board for at least one (1) year. The board may, however, adopt a different rule on the same subject as the rule which was reversed. (Civ. Code § 4365(f).)

Not Applicable to Emergency Rule Changes
This reversal power does not apply to an “emergency rule change” made by the board pursuant to Civil Code Section 4360(d). (Civ. Code § 4365(h); see also “Adopting & Amending Operating Rules.”)

Adopting & Amending Operating Rules

Civil Code Section 4360 sets forth a specific procedure that a board must follow when seeking to adopt or amend an association’s operating rules (to perform a “rule change”). That procedure includes the following primary requirements:

  1. Notice of Proposed Rule Change – the board must provide general notice pursuant to Civil Code Section 4045 of a proposed rule change at least twenty eight (28) days before making the rule change. The notice must include (1) the text of the proposed rule change, and (2) a description of the purpose and effect of the proposed rule change. This notice is not required where “the board determines that an immediate rule change is necessary to address an imminent threat to public health or safety or imminent risk of substantial economic loss to the association.” (Civ. Code § 4360(a).)
  2. Decision Made at Board Meeting – the board’s decision on whether to adopt or amend an operating rule must be made at a board meeting “after consideration of any comments made by association members.” (Civ. Code § 4360(b).) The proposed rule adoption or amendment must have been listed as an agenda item for that meeting  in order for the board to discuss or vote on it at the meeting. (Civ. Code § 4930(a); See also “Board Meeting Agenda Requirements.”)
  3. Notice After Making Rule Change – after the board makes a decision to adopt or amend an operating rule, the board must, “as soon as possible…but not more than 15 days after making the rule change,” deliver general notice pursuant to Civil Code Section 4045 of the rule change. (Civ. Code § 4360(b).)

Board Actions Which do not Constitute “Operating Rules”
Civil Code Section 4355(b) exempts the following board actions from the procedural requirements applicable to adopting, amending or repealing operating rules.

  • A decision regarding the maintenance of the common area;
  • A decision on a specific matter that is not intended to apply generally;
  • A decision setting the amount of a regular or special assessment;
  • A rule change that is required by law, if the board has no discretion as to the substantive effect of the rule change; or
  • Issuance of a document that merely repeats existing law or the governing documents.

Emergency Rule Change
If the board determines “that an immediate rule change is required to address an imminent threat to public health or safety, or an imminent risk of substantial economic loss to the association, it may make an emergency rule change, and no notice is required as specified in [Civ. Code § 4360(a)].” (Civ. Code § 4360(d).) The emergency rule change is effective for one hundred and twenty (120) days, unless the rule change provides for a shorter effective period. (Civ. Code § 4360(d).)

Membership Veto of Rule Change
An association’s membership has limited rights to veto recently adopted or amended operating rules. (See “Veto of Rule Change by Members.”)

Related Links

SB 261 Signed! Changes to Individual and General Notice
Published on HOA Lawyer Blog (9/27/18)

Operating Rules (Rules & Regulations)

An association’s “operating rules” (aka “Rules & Regulations”) are regulations adopted by the board that apply “generally to the management and operation of the common interest development or the conduct of the business and affairs of the association.” (Civ. Code § 4340(a).)

Distinct From Declaration
Unlike the association’s declaration (“CC&Rs”), operating rules are not contained in a recorded document and generally do not require membership approval for their adoption, amendment or repeal by the board. (See “Adopting & Amending Operating Rules.”)

Operating Rule Subject Areas
Civil Code Section 4355 identifies specific subject areas where a rule or regulation adopted by the board would constitute an operating rule. Those subject areas include:

Procedural Issues
The Civil Code contains provisions governing the procedures through which operating rules must be adopted or amended by the board, as well as how an operating rule may be reversed by an association’s membership. (See “Adopting & Amending Operating Rules” and “Veto of Rule Change by Members.”)

Board Actions which do not Constitute “Operating Rules”
Civil Code Section 4355(b) exempts the following board actions from the procedural requirements applicable to adopting, amending, or repealing “operating rules.” As such, the following actions/items do not constitute “operating rules” as contemplated by Civil Code Section 4340(a):

  • A decision regarding the maintenance of the common area;
  • A decision on a specific matter that is not intended to apply generally;
  • A decision setting the amount of a regular or special assessment;
  • A rule change that is required by law, if the board has no discretion as to the substantive effect of the rule change; or
  • Issuance of a document that merely repeats existing law or the governing documents.

When Valid and Enforceable
Civil Code Section 4350 contains five (5) requirements that must all be satisfied before an operating rule becomes “valid and enforceable.” Those requirements include:

  1. The rule is in writing;
  2. The rule is within the authority of the board conferred by law or by the CC&Rs, articles of incorporation or association, or bylaws of the association;
  3. The rule is not in conflict with governing law and CC&Rs, articles of incorporation or association, or bylaws of the association; (See also Ekstrom v. Marquesa at Monarch Beach HOA (2008) 168 Cal.App.4th 1111.)
  4. The rule is adopted, amended, or repealed in good faith and in substantial compliance with the Civil Code’s procedural requirements governing the adoption, amendment, and repeal of operating rules; and
  5. The rule is reasonable.

Annual Budget Report

Civil Code Section 5300 requires an association to prepare and distribute to its members an annual budget report. The annual budget report serves as a consolidated disclosure statement which must include all of the following information, as well as any additional requirements imposed by the association’s governing documents: (Civ. Code § 5300(b)(1)-(9).)

  1. Operating Budget – a pro forma operating budget, showing the estimated revenue and expenses on an accrual basis.
  2. Reserve Summary – a summary of the association’s reserve funds, prepared pursuant to Civil Code Section 5565. (See “Reserve Summary.”)
  3. Reserve Funding Plan Summary – a summary of the reserve funding plan adopted by the board, as specified in Civil Code Section 5550(b)(5). The summary must include notice to the members that the full reserve plan is available upon request, and that the association must provide the full reserve plan to any member upon request.
  4. Deferred Maintenance Items – a statement as to whether the board has determined to defer or not undertake repairs or replacement of any major component with a remaining life of thirty (30) years or less, including a justification for the deferral or decision to not undertake the repairs or replacement.
  5. Anticipated Special Assessments – a statement as to whether the board, consistent with the reserve funding plan adopted pursuant to Civil Code Section 5560, has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or to provide adequate reserve funds for such repair, replacement or restoration. If so, the statement must also set out the estimated amount, commencement date, and duration of the anticipated special assessment.
  6. Reserve Funding Mechanisms – a statement as to the mechanism(s) by which the board will fund reserves to repair or replace major components, including assessments, borrowing, use of other assets, deferral of selected replacements or repairs, or alternative mechanisms.
  7. Procedures for Calculation and Establishment of Reserves – a general statement addressing the procedures used for the calculation and establishment of those reserves to defray the future repair, replacements, or additions to those major components that the association is obligated to maintain.  The statement must include, at the least, reserve calculations using the formula described in Civil Code Section 5570(b)(4), and may not assume a rate of return on cash reserves in excess of two percent (2%) above the discount rate published by the Federal Reserve Bank of San Francisco at the time the calculation was made.
  8. Outstanding Loans – a statement as to whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.
  9. Insurance Summary – a summary of the association’s property, general liability, earthquake, flood, and fidelity insurance policies. For each policy, the summary must include the name of the insurer, the type of insurance, the policy limit, and the amount of the deductible, if any. If this information is specified in an insurance policy’s declaration page, the association may satisfy its obligations to disclose that information by including copies of the declaration page with the annual budget report.  Additionally, the insurance summary must contain, in at least 10-point boldface type, the statement provided under Civil Code Section 5300(b)(9). (See also “Insurance Disclosures.”)
  10. FHA Status – if the association is a condominium community, a statement as to whether the association is a Federal Housing Administration (FHA)-approved condominium project.  The disclosure must contain, in at least 10-point font on a separate piece of paper, the statement provided under Civil Code Section 5300(b)(10).
  11. VA Status – if the association is a condominium community, a statement as to whether the association is a federal Department of Veterans Affairs (VA)-approved condominium project.  The disclosure must contain, in at least 10-point font on a separate piece of paper, the statement provided under Civil Code Section 5300(b)(10).

Additionally, the assessment and reserve funding disclosure summary form, prepared pursuant to Civil Code Section 5570, must accompany each annual budget report or summary of the annual budget report that is distributed to a member. (Civ. Code § 5300(e); See also “Reserve Disclosures.”)

When Distributed
The annual budget report must be distributed to the members within thirty (30) to ninety (90) days before the end of the association’s fiscal year, regardless of any contrary provision contained in an association’s governing documents. (Civ. Code § 5300(a).)

How Distributed
The annual budget report must be distributed to all members by individual delivery. (Civ. Code §§ 5300(c), 5320(a).)  An association is permitted to distribute the annual budget report in one of the following forms: (Civ. Code § 5320(a)(1)-(2).)

  1. The full annual budget report; or
  2. A summary of the annual budget report. The summary must include a general description of the content of the annual budget report, as well as instructions on how the member may request a complete copy of the annual budget report at no cost to the member. The content description and instructions must be printed in at least 10-point boldface type on the first page of the summary.

Notwithstanding the above, if a member has requested to receive association reports in full, the association must deliver the full annual budget report to that member, rather than the summary referenced above. (Civ. Code § 5320(b).)

Related Links

AB 596 Signed! New FHA and VA Disclosures Required Beginning July 1, 2016 – Published on HOA Lawyer Blog, August 24, 2015. 

Articles of Incorporation

An association’s Articles of Incorporation are filed with the California Secretary of State. In general, an association’s Articles of Incorporation:

(1) identify the corporation as an association formed to manage a Common Interest Development (CID) under California law,

(2) state the name and address of the association’s managing agent, and

(3) state the business/corporate office of the association. (Civ. Code § 4280.)

Association’s True Legal Name
An association’s true legal name is set forth in its Articles of Incorporation.

Corporate Status
Most associations are incorporated as Nonprofit Mutual Benefit Corporations under the California Corporations Code. (See Corp. Code §§ 7130-7135.) Though corporate status is not required, associations incorporate to avail themselves of certain legal protections afforded to corporations under California law.

Amending Articles of Incorporation
An association’s Articles of Incorporation may be amended pursuant to the provisions contained therein as well as Sections 7810-7820 of the California Corporations Code.

Civil Code Section 51. Unruh Civil Rights Act.

(a) This section shall be known, and may be cited, as the Unruh Civil Rights Act.

(b) All persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, or sexual orientation are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.

(c) This section shall not be construed to confer any right or privilege on a person that is conditioned or limited by law or that is applicable alike to persons of every sex, color, race, religion, ancestry, national origin, disability, medical condition, marital status, or sexual orientation or to persons regardless of their genetic information.

(d) Nothing in this section shall be construed to require any construction, alteration, repair, structural or otherwise, or modification of any sort whatsoever, beyond that construction, alteration, repair, or modification that is otherwise required by other provisions of law, to any new or existing establishment, facility, building, improvement, or any other structure, nor shall anything in this section be construed to augment, restrict, or alter in any way the authority of the State Architect to require construction, alteration, repair, or modifications that the State Architect otherwise possesses pursuant to other laws.

(e) For purposes of this section:

(1) “Disability” means any mental or physical disability as defined in Sections 12926 and 12926.1 of the Government Code.

(2)

(A) “Genetic information” means, with respect to any individual, information about any of the following:

(i) The individual’s genetic tests.

(ii) The genetic tests of family members of the individual.

(iii) The manifestation of a disease or disorder in family members of the individual.

(B) “Genetic information” includes any request for, or receipt of, genetic services, or participation in clinical research that includes genetic services, by an individual or any family member of the individual.

(C) “Genetic information” does not include information about the sex or age of any individual.

(3) “Medical condition” has the same meaning as defined in subdivision (h) of Section 12926 of the Government Code.

(4) “Religion” includes all aspects of religious belief, observance, and practice.

(5) “Sex” includes, but is not limited to, pregnancy, childbirth, or medical conditions related to pregnancy or childbirth. “Sex” also includes, but is not limited to, a person’s gender. “Gender” means sex, and includes a person’s gender identity and gender expression. “Gender expression” means a person’s gender-related appearance and behavior whether or not stereotypically associated with the person’s assigned sex at birth.

(6) “Sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, or sexual orientation” includes a perception that the person has any particular characteristic or characteristics within the listed categories or that the person is associated with a person who has, or is perceived to have, any particular characteristic or characteristics within the listed categories.

(7) “Sexual orientation” has the same meaning as defined in subdivision (r) of Section 12926 of the Government Code.

(f) A violation of the right of any individual under the federal Americans with Disabilities Act of 1990 (P.L. 101-336) shall also constitute a violation of this section.

Civil Code Section 1431. Joint Liability.

An obligation imposed upon several persons, or a right created in favor of several persons, is presumed to be joint, and not several, except as provided in Section 1431.2, and except in the special cases mentioned in the title on the interpretation of contracts. This presumption, in the case of a right, can be overcome only by express words to the contrary.

Code of Civil Procedure Section 116.220. Small Claims Court.

(a) The small claims court has jurisdiction in the following actions:

(1) Except as provided in subdivisions (c), (e), and (f), for recovery of money, if the amount of the demand does not exceed six thousand two hundred fifty dollars ($6,250).

(2) Except as provided in subdivisions (c), (e), and (f), to enforce payment of delinquent unsecured personal property taxes in an amount not to exceed six thousand two hundred fifty dollars ($6,250), if the legality of the tax is not contested by the defendant.

(3) To issue the writ of possession authorized by Sections 1861.5 and 1861.10 of the Civil Code if the amount of the demand does not exceed six thousand two hundred fifty dollars ($6,250).

(4) To confirm, correct, or vacate a fee arbitration award not exceeding six thousand two hundred fifty dollars ($6,250) between an attorney and client that is binding or has become binding, or to conduct a hearing de novo between an attorney and client after nonbinding arbitration of a fee dispute involving no more than six thousand two hundred fifty dollars ($6,250) in controversy, pursuant to Article 13 (commencing with Section 6200) of Chapter 4 of Division 3 of the Business and Professions Code.

(5) For an injunction or other equitable relief only when a statute expressly authorizes a small claims court to award that relief.

(b) In any action seeking relief authorized by paragraphs (1) to (4), inclusive, of subdivision (a), the court may grant equitable relief in the form of rescission, restitution, reformation, and specific performance, in lieu of, or in addition to, money damages. The court may issue a conditional judgment. The court shall retain jurisdiction until full payment and performance of any judgment or order.

(c) Notwithstanding subdivision (a), the small claims court has jurisdiction over a defendant guarantor as follows:

(1) For any action brought by a natural person against the Registrar of the Contractors State License Board as the defendant guarantor, the small claims jurisdictional limit stated in Section 116.221 shall apply.

(2) For any action against a defendant guarantor that does not charge a fee for its guarantor or surety services, if the amount of the demand does not exceed three thousand one hundred twenty-five dollars ($3,125).

(3) For any action brought by a natural person against a defendant guarantor that charges a fee for its guarantor or surety services, if the amount of the demand does not exceed eight thousand one hundred twenty-five dollars ($8,125).

(4) For any action brought by an entity other than a natural person against a defendant guarantor that charges a fee for its guarantor or surety services or against the Registrar of the Contractors State License Board as the defendant guarantor, if the amount of the demand does not exceed five thousand dollars ($5,000).

(d) In any case in which the lack of jurisdiction is due solely to an excess in the amount of the demand, the excess may be waived, but any waiver is not operative until judgment.

(e) Notwithstanding subdivision (a), in any action filed by a plaintiff incarcerated in a Department of Corrections and Rehabilitation facility, the small claims court has jurisdiction over a defendant only if the plaintiff has alleged in the complaint that the plaintiff has exhausted the plaintiff’s administrative remedies against that department, including compliance with Sections 905.2 and 905.4 of the Government Code. The final administrative adjudication or determination of the plaintiff’s administrative claim by the department may be attached to the complaint at the time of filing in lieu of that allegation.

(f) In any action governed by subdivision (e), if the plaintiff fails to provide proof of compliance with the requirements of subdivision (e) at the time of trial, the judicial officer shall, at the plaintiff’s discretion, either dismiss the action or continue the action to give the plaintiff an opportunity to provide that proof.

(g) For purposes of this section, “department” includes an employee of a department against whom a claim has been filed under this chapter arising out of an employee’s duties as an employee of that department.

(Amended by Stats. 2023, Ch. 861, Sec. 5. (SB 71) Effective January 1, 2024.)