The 2021 Legislative season in California has ended, and there are some new and exciting HOAs bills that have or will come into affect soon. Owners will probably be happy with most of these new laws.
If you have specific questions about how any of these changes will impact your community, please reach out to your attorney.
Virtual meetings
Senate Bill 391, Common interest developments: emergency powers and procedures — which makes it legal to hold a virtual board meeting without a physical meeting location in the event of an emergency—came into effect in September of 2021. Previously, a board meeting held by teleconference was required to have at least one physical location so that members of the association could attend in person.
Notice of the first virtual meeting must be announced to all members by mail. It must include the following:
- Clear instructions on how owners can participate “by teleconference”
- Contact information of the person who will provide technical assistance if issues arise before or during the meeting
- A reminder that a member may request individual delivery of meeting notices, with instructions on how to do so.
Any vote of the directors shall be conducted by a roll call vote.
Payment approval
Assembly Bill 1101, Common interest developments: funds: insurance, was also approved in September of 2021. Sponsored by the Community Associations Institute, the Bill makes several changes regarding the safekeeping of HOA funds.
Deposits made by the HOA must be put in a bank, savings association, or credit union that is insured by the Federal Deposit Insurance Corporation, National Credit Union Administration Insurance Fund or a guaranty corporation. The Bill also imposes certain limits on the use of funds deposited on behalf of an association, including prohibiting funds from being invested in stocks or high-risk investment options.
Previous law prohibited transfers of greater than $10,000, or 5% of an HOA’s total combined reserve and operating account deposits (whichever is less), without written approval from the board.
Now, HOAs of 50 or fewer members must have board approval for transfers amounting to $5,000 or 5% of the HOA’s estimated annual income (whichever is less). HOAs with more than 50 members must have board approval for transfers amounting to $10,000 or 5% of the HOA’s estimated annual income (whichever is less).
Previous law prohibited management from commingling HOA funds with their own money, or with the money of others that the manager receives or accepts, unless certain requirements were met.
This Bill has removed those exceptions and makes it illegal for a managing agent to commingle funds.
The requirement of dishonesty insurance has been clarified by this Bill to be more consistent with insurance terminology.
Digital communications
Senate Bill 392, Common interest developments: document delivery, sponsored by the California Association of Realtors, aims to support digital communication in HOAs.
Starting in 2023, owners can ask that individual notifications from the HOA be delivered electronically, or by traditional mail. The default delivery method is postal mail if owners do not make a choice.
Associations are encouraged to have their members accept communications electronically if they are comfortable doing so. Time, costs and paper can all be saved, especially for larger HOAs. Email works for some associations, while others find it easier to use HOA management software.
As of 2022, HOAs can post general notices on the HOA’s website if this method is designated by the association in the annual policy statement.
HOAs management companies are explicitly forbidden from selling member information to a third party without member consent. This should go without saying, but was so problematic that a rule had to be created to prevent this from occurring.
HOA elections
Coming into effect in 2022, Assembly Bill 502 will allow HOAs to declare board candidates “elected by acclamation” if the HOA has followed certain requirements and the number of nominees does not exceed the number of open seats. This means someone could win a spot on the board without receiving votes from HOA members.
Associations must follow the rules listed below in order to elect candidates by acclamation:
- Reminder announcements about the nominations must be issued between seven and 30 days before the close of nominations
- An acknowledgment must be sent to each person submitting a nomination within seven days of the nomination
- Nominees must be sent a statement informing them of their eligibility or ineligibility within seven days of the nomination
- HOAs can only have elections by acclamation two of every three years
- Term limits are added to the list of allowable board eligibility requirements (limits were unintentionally omitted in 2019’s SB 323 HOA election revisions)
Also starting in 2022, Senate Bill 432 makes minor but important modifications to HOA election procedures. It revises the Corporations Code and corrects a conflict created by 2019’s SB 323 regarding recall elections.
Recall elections are usually requested by petition of the members. The HOA must hold the voting meeting no later than 90 days after the petition. However, with the election process revisions that took effect in 2020, a new Civil Code Section 5115 added two additional election steps to the 30-day period before ballots could be counted. This meant there were three separate phases of HOA board elections, each with its own minimum 30-day requirement, making it impossible to get everything done in 90 days.
SB 432 resolves the statutory conflict by amending Corporations Code Section 7511(c) to extend the time for HOAs to hold a petitioned member meeting. Instead of 90 days, associations will have 150 days to host the meeting. This will give the HOA adequate time to call for nominations, announce candidates, and get out the ballots.
Illegal rental restrictions
Assembly Bill 1584, Housing omnibus, helps correct a problem regarding the correction of illegal rental restrictions. In 2020, SB 3182 implemented Civil Code Section 4741, banning “unreasonable” restrictions against HOA rentals. This requires HOAs to amend their governing documents before 2022 to correct any unreasonable restrictions.
Many lawyers incorrectly told their clients that the law required HOAs to amend their CC&Rs, although rules are also “governing documents.” This is expensive and can be hard to achieve because of member disinterest.
AB 1584 opens a six-month window—starting January 1, 2023 and concluding July 1, 2023—in which HOA boards can amend CC&Rs without a membership vote solely to remove provisions violating Section 4741. Changes should still be made with the assistance of an attorney.
Conclusion
HOA laws must change and evolve to serve the current needs of California associations. This latest set of changes should help promote digital communications, make it easier for HOAs to fill vacant board positions and ensure associations can stay in control, even when there’s an emergency.
We hope that these new laws will have a positive impact on HOA communities and create more stability for boards and owners.