Code Section Group

Corporations Code - CORP

TITLE 1. CORPORATIONS [100 - 14631]

  ( Title 1 enacted by Stats. 1947, Ch. 1038. )

DIVISION 3. CORPORATIONS FOR SPECIFIC PURPOSES [12000 - 14631]

  ( Division 3 enacted by Stats. 1947, Ch. 1038. )

PART 7. GENERAL PROVISIONS APPLICABLE TO CERTAIN CORPORATIONS [14300 - 14318]

  ( Part 7 added by Stats. 1997, Ch. 598, Sec. 3. )

CHAPTER 2. Mutual Water Companies Formed in Connection With Subdivided Lands [14310 - 14318]
  ( Chapter 2 added by Stats. 1997, Ch. 598, Sec. 3. )

14310.
  

(a) It is the intent of the Legislature to ensure both of the following:

(1) That when a mutual water company is formed or is about to be formed in connection with a subdivision, as defined in Sections 11000 and 11004.5 of the Business and Professions Code, an adequate potable water supply and distribution system exists for domestic use and fire protection.

(2) That adequate disclosure and protection to the security holders exist with respect to rights and duties arising from their security holdings in a mutual water company.

(b) For purposes of this chapter, the use of the term “subdivision” has the same definition as “subdivision” as defined in Sections 11000 and 11004.5 of the Business and Professions Code.

(Added by Stats. 1997, Ch. 598, Sec. 3. Effective January 1, 1998.)

14311.
  

A mutual water company formed on or after January 1, 1998, in connection with the offering for sale or lease, or with the sale or lease, of lots within a subdivision and organized to sell, distribute, supply, or deliver water for domestic use to owners of lots in the subdivision shall meet all the requirements of this chapter. A mutual water company described in this section and formed before January 1, 1998, may elect to meet all the requirements of this chapter.

(Added by Stats. 1997, Ch. 598, Sec. 3. Effective January 1, 1998.)

14312.
  

(a) Any person who intends to offer for sale or lease lots within a subdivision within this state and to provide water for domestic use to purchasers of the lots within a subdivision through the formation of a mutual water corporation described in Section 14311, shall include as part of the application for a public report, as described in Section 11010 of the Business and Professions Code, a separate document containing all of the following information, representations, and assurances:

(1) That the provisions of this chapter have been complied with.

(2) That the area in which the mutual water company proposes to deliver water encompasses and includes the entire subdivision and, when applicable, will include parcels to be annexed to the subdivision.

(3) That the mutual water company has contacted the Public Utilities Commission and the county local agency formation commission to determine if the proposed area described in paragraph (2) will overlap an existing water service area or if an existing water service area could more appropriately serve the subdivision.

(4) That the mutual water company has a source of, and title to, a water supply, distribution, and fire protection system sufficient to satisfy expected demands for water from the subdivision.

(5) That copies of the contracts and other documents relating to the acquisition by the mutual water company of the water supply, distribution, and fire protection system have been delivered to, and are on file with, the mutual water company and that these contracts and documents evidence the mutual water company’s title to the water supply, distribution, and fire protection system.

(6) That the subdivider or applicant has executed and entered into a written contract with the mutual water company wherein the subdivider or applicant has agreed to pay monthly a proportional part of the repair and replacement fund according to a ratio of the number of lots owned or controlled by the subdivider or applicant to the total number of lots in the subdivision.

(7) That an engineer’s report has been prepared in accordance with this chapter and Sections 260.504.2 to 260.504.2.4, inclusive, of Title 10 of the California Code of Regulations and is on file with the mutual water company.

(8) That the mutual water company will distribute potable water for domestic use and has obtained, and has on file, a copy of the certificate of the State Director of Health Services, as required by Sections 116300 to 116385, inclusive, of the Health and Safety Code.

(9) That the securities of the mutual benefit water corporation will be sold or issued only to purchasers of lots in the subdivision, or to successors in interest of purchasers of lots in the subdivision, and not sold or issued to the subdivider, applicant, or to the successor in interest of the subdivider or applicant, and that the securities will be sold or issued only after a public report for the subdivision has been issued by the Real Estate Commissioner.

(10) That the securities to be issued by the mutual water company are appurtenant to the land pursuant to Section 14300.

(11) That the water supply and distribution system will serve each lot in the subdivision and be completed prior to the issuance of the public report by the Real Estate Commissioner.

(12) That there is a statement, signed by either the engineer who prepared the engineer’s report referred to in paragraph (7) or a person employed or acting on behalf of a public agency or other independent qualified person, that the water supply and distribution system has been examined and tested and that the water supply and distribution system operates in accordance with the design standards of the water supply and distribution system required by this chapter, and that a copy of this statement is on file with the mutual water company.

(13) That the articles of incorporation or bylaws of the mutual water company contain all of the following:

(A) A statement to the effect that the mutual water company shall provide water to all members or shareholders. If there will be an owners’ association of the subdivision, an additional statement that water shall also be provided to the common areas.

(B) A provision directing the board of directors to establish a rate structure that will result in the accumulation and maintenance of a fund for the repair, administration, maintenance, and replacement of the water supply, distribution, and fire protection system, that the rate charged shall bear a reasonable relationship to the cost of furnishing water and maintaining the system, and that unimproved lots included within the area to be served shall bear a proportionate share of the cost of repair and replacement of the water supply, distribution, and fire protection system, as well as a proportionate share of the cost of maintaining the fund.

(C) A statement evidencing a reasonable relationship between each unit of the securities to be issued and each unit of the area to be served, such as one share of common stock issued for each subdivision lot purchased.

(D) A prohibition on the issuance of fractional shares or securities.

(E) A statement, meeting the requirements of Section 14300, that the securities are appurtenant to the land within the area to be served.

(F) Provision for the transfer of the securities, voting rights of the security holders, inspection of books and records by security holders, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision, where applicable, of the area to be served.

(G) The limitation on the salaries paid to the persons operating, or employed by, the mutual water company, including officers and directors.

(H) A provision for annual meetings of the security holders accompanied by a provision for adequate notice.

(I) A provision for the annual distribution to each security holder of fiscal yearend financial statements within 105 days of the close of the fiscal year.

(J) In the case of a mutual water company that purchases water for distribution from a public utility, municipal water company, or water district, a provision for charging all security holders a pro rata amount of the cost of water supplied to an entity providing fire protection service.

(K) A provision that a share certificate shall be issued to each lot purchased.

(L) In the case of a mutual water company serving a residential subdivision, the following statements: (i) the mutual water company shall be a separate corporation formed and organized for the purpose described in Section 14311; and (ii) if a shareholder becomes delinquent in paying assessments, the right to receive water or dividends may be denied or forfeited but those rights shall not be sold or transferred without the land.

(14) That an offering circular has been prepared and will be used in any offer and sale of the securities of the mutual water company.

(15) That the writings and documents evidencing compliance with all of the above provisions of the subdivision are on file as part of the permanent record of the mutual water company.

(b) The contracts and documents described in paragraph (5) of subdivision (a) shall include all of the following:

(1) Any bill of sale transferring all personal property used and usable in the operation of the mutual water company.

(2) A copy of any recorded deed to the wells and water tanks to be used by the mutual water company in the supply, distribution, and fire protection system.

(3) Copies of any recorded deeds granting easements for construction, repair, maintenance, and improvements of the water supply, distribution, and fire protection system.

(c) The written contract described in paragraph (6) of subdivision (a) shall provide that, in consideration of the transfer by the subdivider or applicant to the mutual water company of the water supply, distribution, and fire protection system, the mutual water company agrees to do all of the following:

(1) Sell and issue securities to the purchasers of the remaining lots in the subdivision on the same terms, except for the price if the difference is justified, as for the initial purchasers.

(2) Cooperate with the subdivider or applicant in the operation, maintenance, and improvement of the present and contemplated water supply, distribution, and fire protection system.

(3) Contract with the subdivider, applicant, or a successor in interest, if a reasonable request is made to do so, for the management of the mutual water company for as long as lots in the subdivision remain unsold. The terms of the contract shall be subject to approval by the board of directors of the mutual water company, including terms related to the compensation to the subdivider, applicant, or successor in interest, if any.

(d) The offering circular described in paragraph (14) of subdivision (a) shall be delivered to each prospective purchaser of the securities and shall include, among other things, all of the following:

(1) A discussion of the water supply, distribution, and fire protection system.

(2) A summary of the opinion of the engineer along with the engineer’s consent, as required by Sections 260.504.2 to 260.504.2.4, inclusive, of Title 10 of the California Code of Regulations.

(3) The area in which the mutual water company intends to provide water service.

(4) A discussion of the rights and duties of the security holders of the mutual water company as set forth in its articles of incorporation and bylaws, including the consequence of failure to pay for water or assessments.

(5) The fact that the articles of incorporation or bylaws provide that the shares or securities of the mutual water company may not be sold separately from the right to water evidenced by the security of the mutual water company and prohibit issuance of fractional shares or securities of the mutual water company.

(6) A discussion of the certificate issued by the State Director of Health Services certifying that the water is fit for domestic use.

(7) The limitation imposed on salaries to be paid to personnel operating, or employed by, the mutual water company, including officers and directors.

(8) A discussion of the transferability of the securities, the voting rights of the security holders, access to books and records, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision of the area to be served, if applicable.

(9) A discussion of the subdivider’s duties with respect to maintenance and repair or replacement of the water supply, distribution, or fire protection system; and a discussion of the establishment and maintenance of the operating, repair, and replacement fund.

(e) The following exhibits shall also be attached to the offering circular:

(1) A copy of the articles of incorporation and bylaws of the mutual water company, including the articles or bylaws recorded under Section 14300.

(2) A copy of financial statements of the mutual water company. If the mutual water company has not yet commenced operations, a detailed operating budget for the first six months of operations should be included as an exhibit to the offering circular. The operating budget must include estimated monthly fees to be charged to the water users.

(3) A specimen certificate evidencing the security to be issued and meeting the requirements of Section 14300.

(f) The Real Estate Commissioner shall prescribe the form and content of the document required by this section.

(Amended by Stats. 1998, Ch. 485, Sec. 41. Effective January 1, 1999.)

14313.
  

The engineer’s report prepared pursuant to the document under Section 14312 shall contain all relevant information pertaining to the proposed water supply, distribution, and fire protection system, including, but not limited to, the following:

(a) A system map of the area to be served showing all of the following:

(1) The total acreage.

(2) The number and location of lots into which the area is or can be subdivided and the location of the connection for water service.

(3) The location of all sources of supply, principal pumping stations, diversion works, water treatment and filter plants, and storage facilities.

(4) The size, character, and location of all mains and ditches.

(5) The location of all valves and gates, gauges, interconnections with other systems, and fire hydrants.

(6) The location, size, and kind of each service pipe.

(7) The layout of all principal pumping stations and water treatment and filter plants to show size, location, and character of all major equipment, pipelines, connections, valves, and other equipment used in connection therewith.

(8) The date of construction and condition of all principal items of plant and extensions of all mains.

(b) A description of the sources of supply, including, in the case of wells, information on the depth, diameter, and casing of the well, and a statement indicating that the proposed water supply and distribution system complies with this section, supported by reports showing the sustained capacity of source of supply, or, if all or some water is to be obtained from another source, copies of contracts for obtaining such water, together with estimates of the present and ultimate water consumption in the area to be served.

(c) A statement indicating in detail the cost of the water supply, distribution, and fire protection system, and indicating the cost of any required repairs or replacement.

(d) An opinion by the engineer to the effect that the water supply, distribution, and fire protection system will adequately, dependably, and safely meet the total requirements for all water consumers under maximum consumption and will meet the requirements of Section 14314. The opinion shall have attached to it the calculations and data used in estimating the water requirements.

(e) A statement by the engineer of the estimated cost of maintenance of the system, the estimated useful life of the components of the system, the estimated cost of replacement of the system, and the monthly or annual amount which should be charged to establish a reasonable reserve for maintenance and replacement of the system based on these estimates.

(Added by Stats. 1997, Ch. 598, Sec. 3. Effective January 1, 1998.)

14314.
  

The water supply and distribution system of a mutual water company described in Section 14311 that proposes to distribute water for domestic use pursuant to this chapter shall comply with all of the following design standards:

(a) The system shall be adequate to maintain normal operating pressure of not less than 25 pounds per square inch, nor more than 125 pounds per square inch, at the service connection; provided, however, that during periods of hourly maximum demand, or at the time of peak seasonal loads, the pressure may be reduced to not less than 20 pounds per square inch, and during periods of hourly minimum demand the pressure may increase to not more than 150 pounds per square inch. Variations in pressure under normal operation shall not exceed 50 percent of the average operating pressure. The average operating pressure shall be determined by computing the arithmetical average of at least 24 consecutive hourly pressure readings.

(b) The quantity of water delivered to the distribution system from all source facilities shall be sufficient to supply adequately, dependably, and safely the total requirements of all water consumers under maximum consumption, and shall be sufficient to maintain the pressure specified by subdivision (a).

(c) The distribution system shall provide at least one connection per service and, to the extent feasible, shall be designed in a property segmented grid so as to do both of the following:

(1) Minimize the extent of interruption in water service when repairs are necessary.

(2) Avoid dead ends in its water mains.

(Added by Stats. 1997, Ch. 598, Sec. 3. Effective January 1, 1998.)

14315.
  

(a) The mutual water company described in Section 14311 shall provide at least a minimum level of water service to its customers for fire protection purposes as an inherent part of the water system design in accordance with the standards set forth in this section. The standards set forth in this section are the minimum levels of water service that the mutual water company shall provide and shall not preclude the mutual water company from designing a fire protection system that meets higher standards, nor preclude any governmental agency from setting higher standards in any area subject to its jurisdiction. A mutual water company may request a fire protection agency to approve a fire protection system that does not meet the standards set forth in this chapter upon a showing by the mutual water company that the proposed system is adequate for fire protection purposes.

(b) In the initial construction, extension, or modification of a water system, any one of which is required to serve (1) a new user or (2) a change in use, the facilities constructed, extended, or modified shall be designed to be capable of providing, for a sustained period of at least two hours, in addition to the requirements of the average daily demand within the area to be served, the minimum flow requirements set forth below opposite the classification of land use to be served:

Land Use

Minimum Flow

1.Rural, residential with a lot density of two or

 fewer units per acre primarily for

 recreational and retirement use ........................

250 gpm

2.Lot density of less than one single-family

 residential unit per acre ........................

500 gpm

3.Lot density of one or two single-family

 residential units per acre ........................

750 gpm

4.Lot density of three or more single-family

 residential units per acre ........................

1,000 gpm

5.Duplex residential units, neighborhood

 business of one story ........................

1,500 gpm

6.Multiple residential, one and two stories;

 light commercial or light industrial ........................

2,000 gpm

7.Multiple residential, three stories or higher;

 heavy commercial or heavy industrial ........................

2,500 gpm

(Added by Stats. 1997, Ch. 598, Sec. 3. Effective January 1, 1998.)

14316.
  

The water supply and distribution system of a mutual water company described in Section 14311 that proposes to distribute water for domestic use shall be constructed to conform with currently accepted engineering practices, and shall comply with the following construction standards where possible:

(a) Water mains to be installed below the frost level or otherwise protected to prevent freezing and shall not have less than 30 inches of cover over the top of the pipe in public streets or alleys except where such depth is rendered impossible by underground obstructions or rocky or hardpan conditions.

(b) The size, design, material, and installation of service pipes shall conform to the reasonable requirements of the mutual water company; provided, however, that the minimum size of the pipe shall be 3/4 inch or greater nominal size. Except where services are not intended for use during freezing weather and arrangements are made to drain service pipes prior to freezing weather, and except at terminations in connection with the meter or water consumer’s piping, all service pipes shall be laid at a depth sufficient to prevent freezing.

(Added by Stats. 1997, Ch. 598, Sec. 3. Effective January 1, 1998.)

14317.
  

The fire protection system of a mutual water company shall be constructed to conform with currently accepted engineering practices, and shall comply with the following construction standards:

(a) The flows set forth in Section 14315 shall be calculated on the basis of a residual pressure of 20 p.s.i.g. in the distribution system under flowing conditions.

(b) Fire hydrants shall be attached to the distribution systems at the locations designated by the entity responsible for their use for firefighting purposes. Any new mains to which a hydrant may be attached shall not be less than six inches in diameter.

(c) Each separately operated water system shall not have less than two independent sources of supply.

(Added by Stats. 1997, Ch. 598, Sec. 3. Effective January 1, 1998.)

14318.
  

The mutual water company shall be financially responsible for the maintenance, repair, or replacement of fire hydrants. A mutual water company shall perform and record annual flow tests pursuant to Section 14317 or, in lieu of the annual flow test under Section 14317, any test to determine available flow performed by a fire protection agency. The recorded test results shall become part of the mutual water company’s books and records.

(Added by Stats. 1997, Ch. 598, Sec. 3. Effective January 1, 1998.)

CORPCorporations Code - CORP