Friday, August 01, 2014

California Assembly Bill AB 968 - Bill Analysis

AB 968 Assembly Bill - Bill Analysis

This bill is intended to clear up the existing ambiguity regarding responsibility for maintenance, repair, and replacement of limited common elements in CIDs. The bill passed the Assembly 73-1, made its way through the Senate committee system,  clearing the Commitee on Transportation and Housing by a 10-0 vote, and is now awaiting a third reading on the Senate floor. The bill is opposed by Donie Vanitzian  and also by Marjorie Murray and the Center for California Homeowner Association Law.

  The full text of the bill is here.

The normal situation is that the association is responsible for the common elements, and the owners are responsible for their separate interest.  But what about limited use common elements, such as condominium decks and patios, that are part of the common elements but that can only be used by the individual owner?  The existing section that governs this is  Section 4775 of the Civil Code.  It currently reads as follows (my emphasis), and it is unclear on that subject:

Section 4775.  

(a) Unless otherwise provided in the declaration of a
4common interest development, the association is responsible for
5repairing, replacing, or maintaining the common area, other than
6exclusive use common area, and the owner of each separate interest 7is responsible for maintaining that separate interest and any 8exclusive use common area appurtenant to the separate interest.

Note that the words "repairing" and "replacing" do not appear in the language about "exclusive use common area," i.e., limited use common elements. So, if the documents don't specify, whose job is it to repair and replace limited common elements?

AB 968 would repeal the existing section 4775 and replace it with this language (again, my emphasis):

Section 4775 is added to the end insertbegin insertCivil Codeend insertbegin insert, to read:end insert
begin insert

begin insert4775.end insert  

(a) (1) Except as provided in paragraph (3), unless
15otherwise provided in the declaration of a common interest
16development, the association is responsible for repairing, 17replacing, and maintaining the common area.
18(2) Unless otherwise provided in the declaration of a common
19interest development, the owner of each separate interest is 20responsible for repairing, replacing, and maintaining that separate 21interest.
22(3) Unless otherwise provided in the declaration of a common
23interest development, the owner of each separate interest is 24responsible for maintaining the exclusive use common area P3    1appurtenant to that separate interest and the association is 2responsible for repairing and replacing the exclusive use common 3area.
4(4) The governing documents may define which items or actions 5constitute maintenance and which constitute repair and 6replacement.
7(b) The costs of temporary relocation during the repair and
8maintenance of the areas within the responsibility of the
9association shall be borne by the owner of the separate interest
11(c) This section shall become operative on January 1, 2016.

Let's make this less abstract. Imagine that I own a condo unit, which means I own an airspace and the whole building is common elements.  My unit has a deck that is mine and mine alone to use--it is a  limited common element.  Under the proposed new law, unless my association's declaration says otherwise, I am responsible for maintaining my deck, and the association is responsible for repairing and replacing the deck.

But wait, you say--what if the coating of my deck is worn out and it is leaking. Is that maintenance, which is my responsibility, or repair, which the associaiton would have to pay for, so that the cost is shared by all owners?  The bill doesn't define that distinction.  Instead, this bill in section (4) says the governing documents may (not must) define "which items or actions constitute maintenance and which constitute repair and replacement." For most associations, there is no such specificiation in the declaration, so they would need to amend their documents if they wanted to clarify that.  

Donie Vanitzian says that section (4) doesn't just allow the association to define what it maintenance versus repair and replacement, but also allows the association to amend the documents and reclassify various building components as limited use common elements, and then assign responsibility for them to individual owners.  From the column: "AB 968 allows boards to expand, redefine and concoct their own rendition of what 'exclusive use common area' is and then assess the owner to maintain, insure and assume liability for it. If the association has a reserve account, this new obligation does not exempt owners from continuing to fund it. Exclusive use components that associations may add are infinite. Some examples: indoor/outdoor pipes, sprinkler systems, wiring, parking stalls, doors, screens, windows, steps to entryways, outdoor light fixtures, walkways, hallways, fences, mailboxes, balconies, porches, roofs, air conditioners, heating systems, outdoor stairs, patches of dirt touching your property's stucco and more."  

 Here's how the legislative analyst summarizes the opposition. They say (my emphasis): 

ARGUMENTS IN OPPOSITION  :    Opponents believe that this bill's  
          lack of definitions for maintenance, repair, and replacement  
          does a huge disservice to associations and residents by forcing  
          associations to devise definitions when even this bill's sponsor  
          cannot.  In addition, opponents argue that this bill imposes  
          significant new financial obligations on homeowners.  First,  
          this bill newly assigns the repair and replacement of separate  
          interests to homeowners.  Second, having associations define  
          this bill's terms creates an opportunity to foist new  
          maintenance duties onto homeowners.  These issues are  
          exacerbated by the lack of clarity in some governing documents  
          over what is considered exclusive-use common area.  

It appears that the opponents see potential for abuse here that the legislature doesn't, given the virtually unanimous votes it has received so far.  The bill is subject to amendment before the third reading, and if anybody knows what amendments are being considered, please comment or email me.

Update 8/3/14: the Executive Council oh Homeowners supports the bill.

Marjorie Murray tells me the Public Interest Law Project and Consumer Attorneys of California oppose the bill. I can't find any reference to the bill on their websites. I will link to their statements directly if and when I can. 


IC_deLight said...

I see this as an open opportunity to justify imposing greater assessments for the benefit of the vendors* while not actually imposing an obligation on the board to use the collected assessments for the purposes used to rationalize them.

Higher assessments always mean bigger bank accounts for the management company, larger amounts in "collection fees" for the management company and HOA attorney, and higher probability of generating these junk fees that benefit only the vendors.

There is no obligation for the board to use the money collected in any particular fashion. The board (vendors) can deliberately create a disconnect between the asset (assessments) and the obligation (decide owner responsibility not corporation responsibility).

IC_deLight said...

...and to incorporate the previous comment into ECM's comment in the blog:
to add insult to injury, the board can create new obligations for maintenance on the homeowners - on a schedule decided unilaterally by the board (i.e., its vendors).

Think about that - the board gets to hold off on maintenance and repairs until it can financially accommodate them - but can now impose new financial and maintenance obligations at the board's (i.e., VENDORS) time schedule regardless of hardship imposed on the owner. The homeowner will get hit with "fines", "late fees", "collection fees", and even threats of foreclosure and actual foreclosure if the homeowner does not adhere to the HOA board's financial and maintenance demands - but the HOA has no such similar obligation to the homeowners. This is doubly troubling when the HOA collects the money that was allegedly supposed to be used for maintenance to begin with.

Another reason HOAs FAIL the titleholders. They benefit ONLY the vendors and local government. Titleholders are playing a complement to musical chairs. Churn, churn, but don't be the last one owning property there.