An Overview of How Associations Work
By Steve Feistel, PCAM®
Organization and Operation
Your new home is part of a community association that is registered with the State of California as a Non-Profit Mutual Benefit Corporation. The Association is managed by a Board of Directors.
The Board of Directors is the governing body, elected by the association members, to oversee the business affairs of the Association. The Board establishes the rules and regulations, approves the annual budget, oversees the maintenance of the common areas, enforces the governing documents (CC&Rs, By-Laws and Articles of Incorporation) and is the decision-making body for all association business.
Income and Operating Costs
Budget – Each year your Association’s Board of Directors will prepare, approve and distribute a new budget. The budget represents your Board’s best estimate of anticipated income, expenses and financial operating requirements for the Association’s fiscal year. The budget is provided to each homeowner at no more than 60 days and no less than 45 prior to the start of the Association’s fiscal year. Under California law the seller of a home is obligated to provide the buyer with a copy of the Association’s budget prior to the close of escrow.
Payment of Assessments - Assessments are due on the first day of each month unless otherwise stated in the notice of assessment for your Association. Failure to pay assessments in a timely manner may result in a late charge applied to the delinquent account. Continued failure to pay assessments may cause the Association to file a lien against your property, file small claims or municipal litigation and/or foreclose upon the property. The Association has more than one course of action in the collection of delinquent assessments. Your Association will publish a collection policy outlining the procedure that will be followed in the collection of the Association's assessments. This collection policy is distributed with the budget each year.
Each Association’s CC&Rs specify the requirements for insurance coverage for fire and casualty, and public liability for the common areas. The extent of the coverage, limits and deductibles in place may be obtained by contacting the Association's insurance agent.
In addition to the coverage provided by your Association, homeowners should consult with a qualified insurance expert to consider additional coverage available. Consideration should be given to coverage for personal contents, additional property coverage, special assessment losses, flood, etc....
The management of the Association is subject to certain governing documents most commonly known as Covenants, Conditions amp; Restrictions (CC&Rs), By-Laws and Articles of Incorporation. The governing documents stipulate the purpose, powers and manner by which your Association operates. The general duties and powers of the Association are specified in the governing documents. The following is a content summary of a typical Association’s governing documents.
The following information, issues and topics are addressed in the CC&Rs:
Owner’s Property Rights and Project Easements
Organization of Association
Duties and Powers
Jurisdiction of Association
Covenant for Maintenance Assessments
Nonpayment of Assessments; Remedies
Maintenance and Repair Obligations
Damage and Condemnation
Rights of Mortgagees
Annexation of Additional Property
The following three headings review key sections of the CC&Rs (use restrictions, maintenance and repair obligations and architectural control) that are commonly referred to in the operation of the Association.
Use Restrictions - This section places restrictions on the use of property within your Association. Due to its frequent impact on day-to-day living in the community, we have highlighted below the topics addressed within the Use Restrictions section of the CC&Rs:
Use of the Association Property
Conduct Affecting Insurance
Owner’s Liability for Damage
Maintenance of Animals
Compliance with Association Documents
Solar Heating Systems
No Alterations to the Courtyard Lighting Systems
Entry Porch Decorations
Maintenance and Repair Obligations - This portion of the CC&Rs specifies the maintenance and repair responsibilities for the common areas and residences. Individual owners are responsible to maintain, repair, replace and restore in a clean, sanitary and attractive condition certain elements of the property. You should review this section of the CC&Rs whenever questions concerning maintenance responsibilities arise. However, since the governing documents can be subject to interpretation and applicable laws may supersede, it may be necessary to consult your Board of Directors to determine the specific building and property elements you may be responsible for.
Architectural Controls - As part of a community association your property is subject to certain architectural controls. Prior to making any change, alteration or modification to your home or lot, you must receive prior written approval. If you plan on modifying your home in any manner that impacts or can be seen from any portion of the common area, surrounding homes or streets, allow yourself sufficient time to obtain the necessary approvals. In addition to the written approval of your Association, you may also be required to obtain permits and approval from local governmental agencies.
By-Laws & Articles of Incorporation
By-Laws - The Association By-Laws describe the administrative procedures by which the Association conducts its business affairs. Topics addressed in the By-Laws include Voting by the membership, Board of Directors, Officers, Meetings and Books and Records.
Articles of Incorporation - The Articles of Incorporation establish the Association as a corporation in the State of California. Generally, the Articles specify the purpose of the association as well as the legal corporate name.
Rules and Regulations – Your Association may publish Rules and Regulations that establish further guidelines and restrictions on the use of the covered property. These Rules are established pursuant to the powers vested to the Board of Directors in the governing documents and are enforceable. Homeowners should carefully review all Rules and Regulations and become familiar with their contents. Copies of the Rules and Regulations should be provided to tenants of rental units.
Architectural Standards and Guidelines – Your Association may publish a set of Architectural Standards and Guidelines that establish standards and procedures for architectural modifications within the community. These standards and guidelines are established pursuant to the powers vested in the governing documents and are enforceable. Homeowners should carefully review these guidelines well in advance of making any modification, alteration or change to any portion of their home or common area.
It is recommended that you check with the Association's manager regarding specific application forms and procedures for obtaining architectural approval if you are unsure of this process.
In addition to the governing documents that stipulate the purpose, powers and manner by which associations operate, many laws enacted by our State and Federal legislators also impact the activities of Homeowner Associations. Depending on the language of the law, these laws sometime supersede elements of your Association's governing documents or add new requirements.
The bodies of California law that preside over association activities include the Civil Code, Corporation Code, Code of Civil Procedure, Business and Professions Code, Vehicle Code, Health and Safety Code and the various building codes. From time to time, other bodies of California law may also control, but most often, the before mentioned list represents those laws Associations most often come into contact with.
The California Civil Code and Corporation Code contain the majority of laws affecting the management and operation of an association in our state. In 1984, Title VI of the California Civil Code was created to consolidate the growing number of laws governing associations under one section of the Civil Code. One of the most frequently referenced bodies of law by associations, the Civil Code, addresses the following statutes:
TITLE VI - COMMON INTEREST DEVELOPMENTS
1350. ..... Citation. (Creation of Davis-Stirling Common Interest Development Act)
1351. ..... Definitions. (Of terms)
1352. ..... Application of title; creation of common interest development.
1353. ..... Declaration; contents.
1354. ..... Covenants and restrictions in declaration as equitable servitudes; enforcement.
1355. ..... Amendment of declaration.
1355.5. ..... Amendment of governing documents to delete construction or marketing provision after completion by developer; requirements.
1356. ..... Amendment of declaration; petition; contents; filing; findings by court; power of court to approve amendment; recording amendment; mailing.
1357. ..... Extension of term of declaration.
1358. ..... Interests included in conveyance, judicial sale or transfer of separate interests; transfers of exclusive use areas; restrictions upon severability of component interests.
1359. ..... Restrictions on partition.
1360. ..... Modification of unit by owner; facilitation of access for handicapped; approval by project association.
1361. ..... Rights and easements of ingress, egress and support.
1362. ..... Ownership of common areas.
1363. ..... Management; powers of association; reference to as community association; meetings; access to records; consolidated association membership rights; copies of minutes, proposed minutes or summaries.
1363.05. ..... Short title; open meeting; executive session exception; minutes; notice; emergency meeting.
1363.1 ..... Prospective managing agent; written disclosures; duration of section.
1363.2 ..... Managing agent; deposit of funds received; requirements; separate record; commingling of funds.
1363.5. ..... Association articles of incorporation; required statement.
1364. ..... Responsibility for repair, replacement or maintenance; damage by wood-destroying pests or organisms; cost allocation; notice of repair requirements; access for maintenance of telephone wiring.
1365. ..... Documents prepared and distributed by associations.
1365.5 ..... Board of Directors; duties.
1365.7 ..... Tortious act or omission of volunteer officer or director of association managing residential development; liability; criteria; limitations.
1365.9. ..... Tort actions against owner of separate interest; tenant in common area; association liability; insurance requirements.
1366. ..... Levy of assessments; limitation on increases; delinquent assessments; interest.
1366.1 ..... Imposition or collection of assessments, penalties or fees; limit on amount.
1366.3. ..... Payment of charges under protest; remedy options.
1367. ..... Assessments; debt of owner; lien; notice; enforcement of lien; application of section.
1368. ..... Sale or title transfer; provision of specified items to prospective purchasers; copies; fees; violations; penalty and attorney fees; validity of title transferred in violation; additional requirements.
1368.4. ..... Written notice to members prior to filing civil action, contents.
1369. ..... Liens for labor and materials.
1370. ..... Liberal construction of instruments.
1371. ..... Boundaries of units; presumption.
1372. ..... Construction of zoning ordinances.
1373. ..... Developments expressly zoned as industrial or commercial and limited to such purposes; exclusions.
1374. ..... Developments with no common area; application of title; standing.
1375. ..... Actions for damages against common interest development builders.
1376. ..... Restrictions on installation or use of video or television antenna; enforceability based on size; reasonable restrictions; application approval; attorney's fees.
1378. ..... Application of section; requirements to approve or disapprove proposed changes; notice of requirements.
The California Corporation Code, like the Civil Code, has a specific section dedicated to homeowners associations. Starting at Section 7110, the California Corporation Code establishes associations as non-profit mutual benefit corporations and covers the following topics:
NON-PROFIT MUTUAL BENEFIT CORPORATIONS
7110 ..... Operations and By-Laws
7210 ..... Directors and Management
7310 ..... Members
7410 ..... Distributions
7510 ..... Meetings and Voting
7610 ..... Voting of Memberships
7710 ..... Members' Derivative Actions
7810 ..... Amendment of Articles
7910 ..... Sales of Assets
8010 ..... Mergers
8110 ..... Bankruptcy Reorganizations and Arrangements
8210 ..... Required Filings by Corporation or its Agent
8310 ..... Records, Reports, and Rights of Inspection
8410 ..... Service of Process
8510 ..... Involuntary Dissolution
8610 ..... Voluntary Dissolution
8710 ..... General Provisions Relating to Dissolution
8810 ..... Crimes and Penalties
On a Federal level, the Constitution of the United States of America, the Civil Rights Act, the Fair Housing Act, the Internal Revenue Code and other Federal legislation may also impact the operations of your Association. While the intervention of Federal law in association day to day operations is not as prevalent as that of the State, its jurisdiction cannot be ignored.