Tag Archives: Compliance Assessment

SB-1007 (Menjivar) Common interest developments: annual reports: assessments: discipline.

Would prohibit a board from imposing a regular assessment that is more than the regular assessment for the association’s preceding year, adjusted for inflation, without the approval of the majority of a quorum members.

Current Status: Pending

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Existing law requires an association to prepare an annual budget report and a policy statement. Existing law also requires the association to either deliver to all members the full report or a summary of the report that includes specified information, on the first page, whenever the annual budget report or a policy statement is prepared.

This bill would amend Civil Code Section 5300 to require the annual budget report to include a high-level summary breakdown of what the regular assessments fund and a statement regarding compensation of a management company. The bill would also amend Civil Code Section 5320 to require a summary of an annual budget or policy statement to also include a high-level breakdown that describes what the regular assessments fund.

Existing law prohibits increases in regular assessments for any fiscal year, unless the board complies with certain requirements, including certain information in its annual budget report. Existing law prohibits an association from increasing regular assessments by more than 20 percent, without the approval of a majority of a quorum of members.

This bill would amend Civil Code Section 5605 to prohibit an association from increasing a regular assessment, unless the board includes the above-referenced information pertaining to regular assessments. The bill would, instead, prohibit a board from imposing a regular assessment for the association’s preceding year, adjusted for inflation, without the approval of the majority of a quorum members.

Existing law requires the association to notify a member 10 days before a meeting to consider or impose discipline on a member, or a monetary charge, as a means of reimbursing the association for costs incurred by the association in the repair of damage to the common area and facilities caused by a member. Existing law also requires the notification to include, among other information, the nature of the alleged violation, or nature of the damage to the common area and facilities.

This bill would add Civil Code Section 5860 to require the association to make any physical evidence used to determine a violation of the governing documents has occurred available to the member at least 5 business days before the hearing or deadline for the member’s response, if the association seeks to impose a monetary penalty against a member for violation of the governing documents.

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Notice & Hearing Requirements

Civil Code section 5855 sets forth procedural requirements that must be satisfied when an association’s board of directors imposes discipline (i.e., imposes a fine or suspends privileges) on a member for a violation of the association’s governing documents, or imposes a reimbursement assessment against a member for repairing damage caused to the common area as a result of the member, the member’s guest or tenant. Those procedural requirements are outlined below and may vary depending upon the terms of the association’s governing documents.

Notice of Violation & Hearing
At least ten (10) days prior to the meeting (the “hearing”) at which the board will decide to impose discipline, the board must notify the member in writing, by either personal delivery or individual delivery, pursuant to Civil Code section 4040. (Civ. Code § 5855(a); See also “Document & Notice Delivery Methods.”) If the disciplinary measure will involve suspension of the member’s membership privileges, the notice must be provided at least fifteen (15) days in advance of the hearing. (Corp. Code § 7341(c).)

Contents of Notice – At a minimum, the notification must include:

The date, time and place of the hearing;
The nature of the alleged violation for which the member may be disciplined or the nature of the damage to the common area for which a reimbursement assessment may be imposed; and
A statement that the member has a right to attend and may address the board at the hearing. (Civ. Code § 5855(b).)

Hearing Where Board Decides to Impose Discipline
The board may conduct the hearing in executive session if it so desires. (Civ. Code § 4935(a).) However, if the member requests for the hearing to be conducted in executive session, the board must honor the member’s request, and also allow for the member to attend the executive session hearing. (Civ. Code §§ 4935(b); 5855(b).) It is common practice for disciplinary hearings to be conducted in executive session even in the absence of a member’s request for the same.

Decision Must be Based Upon Findings – The decision to impose discipline should be based upon findings made by the board regarding the alleged violation for which discipline is being imposed. (Ironwood Owners Assn. IX v. Solomon (1986) 178 Cal. App. 3d 766.) Those findings are necessary to demonstrate that the board’s decision was made in good faith, was reasonable and not arbitrary or capricious. (Id.)

Restrictions on Board’s Ability to Impose Discipline
The board may not impose discipline on the member in either of the following circumstances:

Where the member “cures the violation” prior to the hearing; or
If curing the violation would take longer than the time between the notice of hearing and the hearing date, where the member provides “financial commitment to cure the violation.” (Civ. Code § 5855(c).)

Agreement Reached at Hearing
If the board and the member come to an agreement as a result of the hearing, the board is required to draft a written resolution as to that agreement. That written resolution, when signed by the board and the member, is binding and judicially enforceable. (Civ. Code § 5855(e).)

No Agreement Reached; Member Opportunity to Request IDR – If no agreement between the board and the member is reached as a result of the hearing, the member has the opportunity to request internal dispute resolution (IDR) with the association pursuant to Civil Code section 5910. (Civ. Code § 5855(d).)

Notice of Decision
If the board imposes discipline or a reimbursement assessment, the board is required to, within fourteen (14) days following the action, provide the member with written notification of the board’s decision by either personal delivery or individual delivery pursuant to Civil Code section 4040. (Civ. Code § 5855(f); See also “Document & Notice Delivery Methods.”)

Fines (Monetary Penalties)

Unless otherwise stated in an association’s governing documents, an association may adopt a “policy imposing any monetary penalty, including any fee, on any association member for a violation of the governing documents, including any monetary penalty relating the activities of a guest or a tenant of a member.” (Civ. Code 5850(a).) These “monetary penalties” are commonly known and referred to as “fines.” Fines are used in order to deter violations of the governing documents, as well as to compel compliance from a member, guest, or tenant who is in violation.

Authority to Impose Fines
The language of Section 5850 may not “be construed to create, expand, or reduce the authority of the board to impose monetary penalties on a member for a violation of the governing documents.” (Civ. Code § 5865.) However, the California Court of Appeal has indicated that the authority to impose fines need not be explicitly provided for in an association’s CC&Rs in order for the board to adopt a fine policy and utilize fines in its enforcement efforts. (Liebler v. Point Loma Tennis Club (1995) 40 Cal.App.4th 1600, 1613-1614.)

Distinct from Reimbursement Assessments
“Reimbursement assessments” (aka “compliance assessments”) refer to special assessments levied against an individual member to reimburse the association for its costs incurred in repairing damage to the common area caused by the member, his guest or tenant. (See “Reimbursement & Compliance Assessments.”) By contrast, fines are imposed in order to deter violations and compel compliance; they are not necessarily tied to any expenses incurred by the association as a result of a violation.

Fine Policy & Fine Schedule
The imposition of any fine must be in accordance with the association’s published fine policy and fine schedule that is adopted by the board and distributed to each member as part of the association’s annual policy statement. (Civ. Code § 5850(c); See also “Fine Policy & Fine Schedule.”)

Procedural Requirements
Civil Code Section 5855 contains procedural requirements that must be satisfied before a fine imposed upon a member becomes effective. Those requirements include:

Notice and Meeting (Hearing) – The board must provide the member with individual notice of the meeting (hearing) where the board is to consider imposing the fine at least ten (10) days prior to the meeting. (Civ. Code § 5855(a).) The notice must contain, “at a minimum, the date, time and place of the meeting, the nature of the alleged violation for which a member may be disciplined…and a statement that the member has a right to attend and may address the board at the meeting.” (Civ. Code § 5855(b).) The board must meet with the member in executive session if requested by the member. (Civ. Code § 5855(b).)
Notice of Decision – If the board imposes the fine, the board must, within fifteen (15) days following the action, “provide the member with a written notification of the decision, by either personal delivery or individual delivery pursuant to Section 4040.” (Civ. Code § 5855(c).)

For more information on these procedural requirements, see “Notice & Hearing Requirements.”

No Liens Allowed for Fines
When a member fails to remit payment of assessments owed to the association in a timely fashion, the association may record an assessment lien against the member’s property to act as security for the payment of the member’s assessment debt. (Civ. Code § 5675(a); See also “Notice of Delinquent Assessment (Assessment Lien).”) However, a “monetary penalty” (i.e., a fine) “imposed by the association as a disciplinary measure for failure of a member to comply with the governing documents…may not be characterized nor treated in the governing documents as an assessment that may become a lien against the member’s separate interest enforceable by the sale of the interest” through nonjudicial foreclosure. (Civ. Code § 5725(b).)

Reimbursement & Compliance Assessments

Reimbursement assessments (aka “compliance assessments”) refer to special assessments levied against an individual owner’s separate interest to reimburse the association for its costs incurred in repairing damage to the common area caused by that owner, his guest or tenant. Reimbursement assessments are distinct from fines (monetary penalties), as the imposition of a fine is not necessarily tied to any costs incurred by the association as a result of an owner’s violation. (See “Fines (Monetary Penalties).”)

Where an association’s CC&Rs do not contain provisions directly allowing for the imposition of reimbursement assessments, many HOA attorneys take the position that Civil Code Section 5725(a) impliedly allows the board to impose them in the form of monetary charges. However, the degree to which such a reimbursement assessment may then become a lien against the owner’s separate interest and enforced through foreclosure will be dictated by the governing documents. (See Civ. Code § 5725(a).) When foreclosure is not authorized, collecting an unpaid reimbursement assessment may require the association to file a lawsuit against the owner in order to obtain a money judgment.

Procedural Requirements
Civil Code Section 5855 contains procedural requirements that must be satisfied before a reimbursement assessment imposed upon a member becomes effective. Those requirements include:

Notice and Meeting (Hearing). The board must provide the member with individual notice of the meeting (hearing) where the board is to consider imposing the reimbursement assessment, at least ten (10) days prior to the meeting. (Civ. Code § 5855(a).) The notice must contain, “at a minimum, the date, time and place of the meeting…the nature of the damage to the common area and facilities for which the [reimbursement assessment] may be imposed, and a statement that the member has a right to attend and may address the board at the meeting.” (Civ. Code § 5855(b).) The board must meet with the member in executive session if requested by the member. (Civ. Code § 5855(b).)
Notice of Decision. If the board imposes the reimbursement assessment, the board must, within fifteen (15) days following the action, “provide the member with a written notification of the decision, by either personal delivery or individual delivery pursuant to Section 4040.” (Civ. Code § 5855(c).)

**For more information on these procedural requirements, see “Notice & Hearing Requirements.”

Davis-stirling Act

Civil Code Section 5725. Liens for Reimbursement Assessments, Monetary Penalties; Limitations.

(a) A monetary charge imposed by the association as a means of reimbursing the association for costs incurred by the association in the repair of damage to common area and facilities caused by a member or the member’s guest or tenant may become a lien against the member’s separate interest enforceable by the sale of the interest under Sections 2924, 2924b, and 2924c, provided the authority to impose a lien is set forth in the governing documents. It is the intent of the Legislature not to contravene Section 2792.26 of Title 10 of the California Code of Regulations, as that section appeared on January 1, 1996, for associations of subdivisions that are being sold under authority of a subdivision public report, pursuant to Part 2 (commencing with Section 11000) of Division 4 of the Business and Professions Code.

(b) A monetary penalty imposed by the association as a disciplinary measure for failure of a member to comply with the governing documents, except for the late payments, may not be characterized nor treated in the governing documents as an assessment that may become a lien against the member’s separate interest enforceable by the sale of the interest under Sections 2924, 2924b, and 2924c.

(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)

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Current Status: Pending

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