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AB-690 Common interest developments: managers: conflicts of interest.(2017-2018)

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Date Published: 07/12/2017 09:00 PM
AB690:v97#DOCUMENT

Enrolled  July 12, 2017
Passed  IN  Senate  July 10, 2017
Passed  IN  Assembly  May 15, 2017
Amended  IN  Assembly  March 28, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill No. 690


Introduced by Assembly Member Quirk-Silva

February 15, 2017


An act to amend Section 11504 of the Business and Professions Code, and to amend Sections 4528, 4530, 5300, and 5375 of, and to add Sections 5375.5 and 5376 to, the Civil Code, relating to common interest developments.


LEGISLATIVE COUNSEL'S DIGEST


AB 690, Quirk-Silva. Common interest developments: managers: conflicts of interest.
(1) Existing law requires that a person or firm who will act as a common interest development manager provide specified disclosures to the board of directors of the homeowners association, including whether the prospective manager is certified, holds an active real estate license, and the manager’s name and address.
This bill would require a manager or a common interest development management firm to disclose specified information before entering into a management agreement. The bill would require a disclosure on whether the manager receives a referral fee from 3rd parties for distributing required documents and an affirmative written acknowledgment that specified documents provided to the manager are the property of the association and not the manager.
(2) The Davis-Stirling Common Interest Development Act defines and regulates common interest developments. The act requires a common interest development to be managed by an association. The act requires the association to distribute an annual budget report 30 to 90 days before the end of its fiscal year. Existing law requires the annual budget report to include specified information.
This bill would additionally require the annual budget report to contain specified information relating to charges for requesting copies of certain documents from the association.
The act requires a prospective managing agent of a common interest development to provide a written statement to the board of the association containing specified information concerning the managing agent. The act also requires the association to provide to the owner of a separate interest, upon request, specified documents.
This bill would require that the manager, common interest development management firm, or its contracted agent facilitate the delivery of the documents requested, if this responsibility is required by the management contract. The bill would modify the specified form used to identify the charges for requesting copies of documents held by the association by requiring the form to inform a seller that he or she is not required to purchase all of the documents listed on the form and may purchase some or all of the documents as desired. The bill would also require a prospective manager or prospective management firm of a common interest development when presenting a bid for services to the board to include a disclosure of any conflict of interest, as defined.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NO   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 11504 of the Business and Professions Code is amended to read:

11504.
 On or before September 1, 2003, and annually thereafter, a person who either provides or contemplates providing the services of a common interest development manager to an association shall disclose to the board of directors of the association the following information:
(a) Whether or not the common interest development manager has met the requirements of Section 11502 so he or she may be called a certified common interest development manager.
(b) The name, address, and telephone number of the professional association that certified the common interest development manager, the date the manager was certified, and the status of the certification.
(c) The location of his or her primary office.
(d) Prior to entering into or renewing a contract with an association, the common interest development manager shall disclose to the board of directors of the association or common interest development whether the fidelity insurance of the common interest development manager or his or her employer covers the current year’s operating and reserve funds of the association. This requirement shall not be construed to compel an association to require a common interest development manager to obtain or maintain fidelity insurance.
(e) Whether the common interest development manager possesses an active real estate license.
(f) A common interest development manager or common interest development management firm shall disclose information required in Section 5375 of the Civil Code.
(g) Whether or not the common interest development manager receives a referral fee or other monetary benefit from a third-party provider distributing documents pursuant to Section 5300 of the Civil Code.
(h) An affirmative written acknowledgment that the disclosure provided to a member or potential member pursuant to Sections 4528 and 5300 of the Civil Code, and all documents provided thereunder, are the property of the association and not its managing agent or the agent’s managing firm.

SEC. 2.

 Section 4528 of the Civil Code is amended to read:

4528.
 The form for billing disclosures required by Section 4530 shall be in at least 10-point type and substantially the following form:
CHARGES FOR DOCUMENTS PROVIDED AS REQUIRED BY SECTION 4525*
The seller may, in accordance with Section 4530 of the Civil Code, provide to the prospective purchaser, at no cost, current copies of any documents specified by Section 4525 that are in the possession of the seller.
A seller may request to purchase some or all of these documents, but shall not be required to purchase ALL of the documents listed on this form.
Property Address
Owner of Property
Owner’s Mailing Address (If known or different from property address.)
Provider of the Section 4525 Items:
Print Name _________ Position or Title _________ Association or Agent
Date Form Completed
Check or Complete Applicable Column or Columns Below
Not Available
(N/A), Not
Applicable
(N/App), or Directly Provided by Seller and confirmed in writing by Seller as a current document (DP)
Document
Civil Code Section Included
Fee for Document
Articles of Incorporation or statement that not incorporated
Section 4525(a)(1)
CC&Rs
Section 4525(a)(1)
Bylaws
Section 4525(a)(1)
Operating Rules
Section 4525(a)(1)
Age restrictions, if any
Section 4525(a)(2)
Rental restrictions, if any
Section 4525(a)(9)
Annual budget report or summary, including reserve study
Sections 5300 and 4525(a)(3)
Assessment and reserve funding disclosure summary
Sections 5300 and 4525(a)(4)
Financial statement review
Sections 5305 and 4525(a)(3)
Assessment enforcement policy
Sections 5310 and 4525(a)(4)
Insurance summary
Sections 5300 and 4525(a)(3)
Regular assessment
Section 4525(a)(4)
Special assessment
Section 4525(a)(4)
Emergency assessment
Section 4525(a)(4)
Other unpaid obligations of seller
Sections 5675 and 4525(a)(4)
Approved changes to assessments
Sections 5300 and 4525(a)(4), (8)
Settlement notice regarding common area defects
Sections 4525(a)(6), (7), and 6100
Preliminary list of defects
Sections 4525(a)(6), 6000, and 6100
Notice(s) of violation
Sections 5855 and 4525(a)(5)
Required statement of fees
Section 4525
Minutes of regular board meetings conducted over the previous 12 months, if requested
Section 4525(a)(10)
Total fees for these documents:
* The information provided by this form may not include all fees that may be imposed before the close of escrow. Additional fees that are not related to the requirements of Section 4525 shall be charged separately.

SEC. 3.

 Section 4530 of the Civil Code is amended to read:

4530.
 (a) (1) Upon written request, the association shall, within 10 days of the mailing or delivery of the request, provide the owner of a separate interest, or any other recipient authorized by the owner, with a copy of all of the requested documents specified in Section 4525.
(2) The documents required to be made available pursuant to this section may be maintained in electronic form, and may be posted on the association’s Internet Web site. Requesting parties shall have the option of receiving the documents by electronic transmission if the association maintains the documents in electronic form.
(3) Delivery of the documents required by this section shall not be withheld for any reason nor subject to any condition except the payment of the fee authorized pursuant to subdivision (b).
(b) (1) The association may collect a reasonable fee from the seller based upon the association’s actual cost for the procurement, preparation, reproduction, and delivery of the documents requested pursuant to this section. An additional fee shall not be charged for the electronic delivery in lieu of a hard copy delivery of the documents requested.
(2) Upon receipt of a written request, the association shall provide, on the form described in Section 4528, a written or electronic estimate of the fees that will be assessed for providing the requested documents prior to processing the request in paragraph (1) of subdivision (a).
(3) (A) A cancellation fee for documents specified in subdivision (a) shall not be collected if either of the following applies:
(i) The request was canceled in writing by the same party that placed the order and work had not yet been performed on the order.
(ii) The request was canceled in writing and any work that had been performed on the order was compensated.
(B) The association shall refund all fees collected pursuant to paragraph (1) if the request was canceled in writing and work had not yet been performed on the order.
(C) If the request was canceled in writing, the association shall refund the share of fees collected pursuant to paragraph (1) that represents the portion of the work not performed on the order.
(4) Fees for any documents required by this section shall be distinguished from, separately stated, and separately billed from, all other fees, fines, or assessments billed as part of the transfer or sales transaction.
(5) Any documents not expressly required by Section 4525 to be provided to a prospective purchaser by the seller shall not be included in the document disclosure required by this section. Bundling of documents required to be provided pursuant to this section with other documents relating to the transaction is prohibited.
(6) A seller shall provide to the prospective purchaser, at no cost, current copies of any documents specified by Section 4525 that are in the possession of the seller.
(7) The fee for each document provided to the seller for the purpose of transmission to the prospective purchaser shall be individually itemized in the statement required to be provided by the seller to the prospective purchaser.
(8) It is the responsibility of the seller to compensate the association, person, or entity that provides the documents required to be provided by Section 4525 to the prospective purchaser.
(c) An association may contract with any person or entity to facilitate compliance with this section on behalf of the association.
(d) The association shall also provide a recipient authorized by the owner of a separate interest with a copy of the completed form specified in Section 4528 at the time the required documents are delivered. A seller may request to purchase some or all of these documents, but shall not be required to purchase all of the documents listed on the form specified in Section 4528.

SEC. 4.

 Section 5300 of the Civil Code is amended to read:

5300.
 (a) Notwithstanding a contrary provision in the governing documents, an association shall distribute an annual budget report 30 to 90 days before the end of its fiscal year.
(b) Unless the governing documents impose more stringent standards, the annual budget report shall include all of the following information:
(1) A pro forma operating budget, showing the estimated revenue and expenses on an accrual basis.
(2) A summary of the association’s reserves, prepared pursuant to Section 5565.
(3) A summary of the reserve funding plan adopted by the board, as specified in paragraph (5) of subdivision (b) of Section 5550. The summary shall include notice to members that the full reserve study plan is available upon request, and the association shall provide the full reserve plan to any member upon request.
(4) A statement as to whether the board has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less, including a justification for the deferral or decision not to undertake the repairs or replacement.
(5) A statement as to whether the board, consistent with the reserve funding plan adopted pursuant to Section 5560, has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or to provide adequate reserves therefor. If so, the statement shall also set out the estimated amount, commencement date, and duration of the assessment.
(6) A statement as to the mechanism or mechanisms by which the board will fund reserves to repair or replace major components, including assessments, borrowing, use of other assets, deferral of selected replacements or repairs, or alternative mechanisms.
(7) A general statement addressing the procedures used for the calculation and establishment of those reserves to defray the future repair, replacement, or additions to those major components that the association is obligated to maintain. The statement shall include, but need not be limited to, reserve calculations made using the formula described in paragraph (4) of subdivision (b) of Section 5570, and may not assume a rate of return on cash reserves in excess of 2 percent above the discount rate published by the Federal Reserve Bank of San Francisco at the time the calculation was made.
(8) A statement as to whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.
(9) A summary of the association’s property, general liability, earthquake, flood, and fidelity insurance policies. For each policy, the summary shall include the name of the insurer, the type of insurance, the policy limit, and the amount of the deductible, if any. To the extent that any of the required information is specified in the insurance policy declaration page, the association may meet its obligation to disclose that information by making copies of that page and distributing it with the annual budget report. The summary distributed pursuant to this paragraph shall contain, in at least 10-point boldface type, the following statement:

“This summary of the association’s policies of insurance provides only certain information, as required by Section 5300 of the Civil Code, and should not be considered a substitute for the complete policy terms and conditions contained in the actual policies of insurance. Any association member may, upon request and provision of reasonable notice, review the association’s insurance policies and, upon request and payment of reasonable duplication charges, obtain copies of those policies. Although the association maintains the policies of insurance specified in this summary, the association’s policies of insurance may not cover your property, including personal property or real property improvements to or around your dwelling, or personal injuries or other losses that occur within or around your dwelling. Even if a loss is covered, you may nevertheless be responsible for paying all or a portion of any deductible that applies. Association members should consult with their individual insurance broker or agent for appropriate additional coverage.”

(10) When the common interest development is a condominium project, a statement describing the status of the common interest development as a Federal Housing Administration (FHA)-approved condominium project pursuant to FHA guidelines, including whether the common interest development is an FHA-approved condominium project. The statement shall be in at least 10-point font on a separate piece of paper and in the following form:

“Certification by the Federal Housing Administration may provide benefits to members of an association, including an improvement in an owner’s ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest.
This common interest development [is/is not (circle one)] a condominium project. The association of this common interest development [is/is not (circle one)] certified by the Federal Housing Administration.”

(11) When the common interest development is a condominium project, a statement describing the status of the common interest development as a federal Department of Veterans Affairs (VA)-approved condominium project pursuant to VA guidelines, including whether the common interest development is a VA-approved condominium project. The statement shall be in at least 10-point font on a separate piece of paper and in the following form:

“Certification by the federal Department of Veterans Affairs may provide benefits to members of an association, including an improvement in an owner’s ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest.
This common interest development [is/is not (circle one)] a condominium project. The association of this common interest development [is/is not (circle one)] certified by the federal Department of Veterans Affairs.”

(12) A copy of the completed “Charges For Documents Provided” disclosure identified in Section 4528. For purposes of this section, “completed” means that the “Fee for Document” section of the form individually identifies the costs associated with providing each document listed on the form.
(c) The annual budget report shall be made available to the members pursuant to Section 5320.
(d) The summary of the association’s reserves disclosed pursuant to paragraph (2) of subdivision (b) shall not be admissible in evidence to show improper financial management of an association, provided that other relevant and competent evidence of the financial condition of the association is not made inadmissible by this provision.
(e) The Assessment and Reserve Funding Disclosure Summary form, prepared pursuant to Section 5570, shall accompany each annual budget report or summary of the annual budget report that is delivered pursuant to this article.

SEC. 5.

 Section 5375 of the Civil Code is amended to read:

5375.
 A prospective managing agent of a common interest development shall provide a written statement to the board as soon as practicable, but in no event more than 90 days, before entering into a management agreement which shall contain all of the following information concerning the managing agent:
(a) The names and business addresses of the owners or general partners of the managing agent. If the managing agent is a corporation, the written statement shall include the names and business addresses of the directors and officers and shareholders holding greater than 10 percent of the shares of the corporation.
(b) Whether or not any relevant licenses such as architectural design, construction, engineering, real estate, or accounting have been issued by this state and are currently held by the persons specified in subdivision (a). If a license is currently held by any of those persons, the statement shall contain the following information:
(1) What license is held.
(2) The dates the license is valid.
(3) The name of the licensee appearing on that license.
(c) Whether or not any relevant professional certifications or designations such as architectural design, construction, engineering, real property management, or accounting are currently held by any of the persons specified in subdivision (a), including, but not limited to, a professional common interest development manager. If any certification or designation is held, the statement shall include the following information:
(1) What the certification or designation is and what entity issued it.
(2) The dates the certification or designation is valid.
(3) The names in which the certification or designation is held.
(d) Disclose any business or company in which the common interest development manager or common interest development management firm has any ownership interests, profit-sharing arrangements, or other monetary incentives provided to the management firm or managing agent.
(e) Whether or not the common interest development manager or common interest development management firm receives a referral fee or other monetary benefit from a third-party provider distributing documents pursuant to Sections 4528 and 4530.

SEC. 6.

 Section 5375.5 is added to the Civil Code, to read:

5375.5.
 A common interest development manager or common interest development management firm shall disclose, in writing, any potential conflict of interest when presenting a bid for service to an association’s board of directors. “Conflict of interest,” for purposes of this section, means:
(a) Any referral fee or other monetary benefit that could be derived from a business or company providing products or services to the association.
(b) Any ownership interests or profit-sharing arrangements with service providers recommended to, or used by, the association.

SEC. 7.

 Section 5376 is added to the Civil Code, to read:

5376.
 The common interest development manager, common interest development management firm, or its contracted third-party agent shall facilitate the delivery of disclosures required pursuant to paragraph (1) of subdivision (a), paragraph (2) of subdivision (b), and subdivision (d), of Section 4530 if the common interest development manager, or common interest development management firm, is contractually responsible for delivering those documents.