Tag Archives: Davis-Stirling

Commercial and Industrial Common Interest Developments Treated Differently From Residential Developments

Recently, the California Legislature enacted SB 752, entitled “Commercial and Industrial Common Interest Developments.” Effective January 1, 2014, commercial and industrial common interest developments are treated differently from residential CIDs. Prior to 2014, commercial and industrial CIDs were treated the same as residential CIDs under the Davis-Stirling Act. Although many of the provisions in the Commercial and Industrial Common Interest Development Act (Civil Code Section 6580, et seq.are similar to those found in the Davis-Stirling Act, there are some significant changes that are tailored to commercial and industrial developments.

Who Does it Apply to? 

The Commercial and Industrial Common Interest Development Act (the “Act”) applies to a common interest development that is limited to commercial and/or industrial uses by law or recorded CC&Rs. If a common interest development includes both commercial and residential uses, the Davis-Stirling Act would still apply. It would apply to commercial or industrial common interest developments going forward even if they were formed prior to 2014.

What are Some of the Changes? 

Under the Act, many of the disclosures required under the Davis-Stirling Act have been removed. For example, there is no requirement for a commercial common interest development to provide disclosures of a budget or financial documents to members or prospective purchasers of a unit.

Further, owners within a commercial common interest development do not have the statutory right to request alternative dispute resolution if a dispute arises under the common interest development’s governing documents.

The law addressing amendments to the CC&Rs has also changed. A commercial or industrial common interest development cannot seek a court order allowing a majority of voters to approve an issue when a super majority is required, although it would be allowed to do so if it were a residential common interest development. However, most of the provisions regarding amending the governing documents are similar to those found in the Davis-Stirling Act.

Commercial or industrial common interest developments are also not required to follow the Open Meeting Act (Civil Code Section 1363.05) although an open meeting is still required to make amendments to the governing documents.  Further, certain provisions of the Corporations Code still apply to meetings held by a commercial or industrial common interest development.

Liability insurance requirements have also grown. A development with 100 or fewer units must maintain at least 2 million dollars in liability insurance, while a development with over 100 units must maintain at least 3 million dollars in liability insurance.

What About Old Governing Documents or Prior Acts? 

Commercial or industrial common interest developments would still be regulated by their governing documents; however, many governing documents will contain language that would be required under the new Act. The Act does not invalidate any developments’ actions taken prior to 2014. In order to update governing documents to applicable law by referencing new statutes, a common interest development is allowed to revise its CC&Rs to make correct references to the Act and public law without approval by members.

For commercial or industrial common interest developments, it may be wise to review governing documents to determine if any revisions are necessary under the Act. Because the Act is less demanding than the Davis-Stirling Act, a commercial or industrial common interest development may also want to remove certain provisions in their CC&Rs that would not be required under the Act.

 

 

 

HOA Board Has Authority to Limit Rules for the Election of Directors

areas-of-practice

Recently, a California court found that a HOA (also known as a homeowner’s association) has the authority to adopt election rules for the election of directors when the rule is reasonable and does not conflict with the HOA’s governing documents. This is an important decision that establishes how HOAs can govern elections. A copy of Friars Village Homeowners Association v. Hansing can be found here.

Charles Hansing (“Plaintiff”) sued his HOA, the Friars Village Homeowners Association (“Friars Village”) after he attempted to run for the board of directors of Friars Village. Friars Village is a HOA governed by the Davis-Stirling Common Interest Development Act and operates under amended articles of incorporation and bylaws. The Friars Village Board of Directors (“HOA Board”) also adopted a rule that prohibited someone from running for a member on the HOA Board if they were related to a current director by blood or marriage, also known as the Relationship Rule by the Court. The Relationship Rule was not in the by laws or articles of incorporation.

Plaintiff challenged the rule because his wife was currently a member on the HOA Board. Plaintiff sued after the HOA Board denied him from running to be on the HOA Board. The trial court upheld Friar Village’s Relationship Rule, and Plaintiff appealed. 

The Court found that the Relationship Rule was reasonable because it was based upon the HOA Board’s desire to prevent a voting bloc by having two members of the HOA Board from the same family. The Court also found that the Relationship Rule was consistent with Friar’s Village governing documents. The Court further rejected the proposition that the Relationship Rule prohibited the Plaintiff from nominating himself, which was allowed under Friar Village’s articles of incorporation and by laws. 

Friars Village Homeowners Association establishes that a HOA can adopt its own election rules setting forth additional requirements or qualifications that are not stated in the HOA’s by laws or articles of incorporation as long as the rules are consistent with the HOA’s governing documents and are reasonable. Although the  Court’s decision was based upon a review of the HOA’s governing documents and the specific election rule, other HOAs would be able to follow the Court’s reasoning in creating their own election rules.