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SB-432 Common interest developments. (2021-2022)

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Date Published: 06/16/2021 09:00 PM
SB432:v98#DOCUMENT

Amended  IN  Assembly  June 16, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 432


Introduced by Senator Wieckowski

February 12, 2021


An act to amend Sections 5100 and 5105 5100, 5105, 5115, and 5200 of the Civil Code, and to amend Section 7511 of the Corporations Code, relating to common interest developments.


LEGISLATIVE COUNSEL'S DIGEST


SB 432, as amended, Wieckowski. Common interest developments.
Existing law, the Davis-Stirling Common Interest Development Act, regulates common interest developments. Existing law provides procedures governing the election of members of the board of directors of common interest development associations. Existing law provides for nomination by acclamation in an election of members of the board of directors of the association if certain conditions are satisfied, including that the association permits all candidates to run if nominated. However, an association is authorized to disqualify a person from nomination under certain circumstances, including if the person has been a member of the association for less than one year.
This bill would revise and recast common interest development election procedures, including, among other things, limiting certain noticing provisions to the elections of directors and to recall elections, requiring an association to maintain association election materials, as defined, for one year after the date of the election, and specifying that the candidate list is required to include the name and address of individuals nominated as a candidate for election to the board of directors. The bill would include among the permissible reasons for disqualifying a person from nomination if the person has served the maximum number of terms or sequential terms allowed by the association.
Existing law requires an association to adopt operating rules for appointing one or 3 independent third parties as inspectors of elections and that allow the inspectors to appoint and oversee additional persons to verify signatures and to count and tabulate votes, provided that the persons are independent third parties. Existing law specifies criteria for who an independent third party may be, including a volunteer poll worker with the county registrar of voters, among others.
This bill would require the additional persons to be appointed and overseen by the inspectors of election to also satisfy the criteria of who may be an independent third party.
Existing law authorizes and regulates the formation and operation of various corporations, including a nonprofit mutual benefit corporation. Existing law, the Nonprofit Mutual Benefit Corporation Law, requires an officer of the board, upon a written request for a special meeting, to give a specified notice to the members entitled to vote that the special meeting will be held not less than 35 days nor more than 90 days after receipt of the request.
This bill would, for a corporation that is a common interest development, require the notice for a special meeting described above to be given not less than 35 days nor more than 150 days after receipt of the request.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NO   Local Program: NO  

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


SECTION 1.

 Section 5100 of the Civil Code is amended to read:

5100.
 (a) (1) Notwithstanding any other law or provision of the governing documents, elections regarding assessments legally requiring a vote, election and removal of directors, amendments to the governing documents, or the grant of exclusive use of common area pursuant to Section 4600 shall be held by secret ballot in accordance with the procedures set forth in this article.
(2) An association shall hold an election for a seat on the board of directors in accordance with the procedures set forth in this article at the expiration of the corresponding director’s term and at least once every four years.
(b) This article also governs an election on any topic that is expressly identified in the operating rules as being governed by this article.
(c) The provisions of this article apply to both incorporated and unincorporated associations, notwithstanding any contrary provision of the governing documents.
(d) The procedures set forth in this article shall apply to votes cast directly by the membership, but do not apply to votes cast by delegates or other elected representatives.
(e) In the event of a conflict between this article and the provisions of the Nonprofit Mutual Benefit Corporation Law (Part 3 (commencing with Section 7110) of Division 2 of Title 1 of the Corporations Code) relating to elections, the provisions of this article shall prevail.
(f) Directors shall not be required to be elected pursuant to this article if the governing documents provide that one member from each separate interest is a director.
(g) Notwithstanding the secret balloting requirement in subdivision (a), when, as of the close of nominations for directors on the board, the number of director nominees is not more than the number of vacancies to be elected, as determined by the inspector or inspectors of the elections, the director nominees shall be considered elected by acclamation if all of the following are true:
(1) The association includes 6,000 or more units.
(2) The association provided individual notice of the election and the procedure for nominating candidates at least 30 days before the close of nominations.
(3) The association permits all candidates to run if nominated, except as follows:
(A) An association shall disqualify a person from nomination as a candidate if the person is not a member of the association at the time of the nomination. This subdivision does not restrict a developer from making a nomination of a nonmember candidate consistent with the voting power of the developer, as set forth in the regulations of the Department of Real Estate and the association’s governing documents.
(B) Through its bylaws or election operating rules adopted pursuant to subdivision (a) of Section 5105 only, an association may shall only disqualify a person from nomination as a candidate based on any of the following:
(i) An association may disqualify a nominee if that person discloses, or if the association is aware or becomes aware of, a past criminal conviction that would either prevent the association from purchasing the fidelity bond insurance coverage required by Section 5806 should the person be elected or terminate the association’s existing fidelity bond insurance coverage required by Section 5806 as to that person should the person be elected.
(ii) Failure to be current in the payment of regular and special assessments, which are consumer debts subject to validation. If an association requires a nominee to be current in the payment of regular and special assessments, it shall also require a director to be current in the payment of regular and special assessments. An association may not disqualify a nominee for nonpayment of fines, fines renamed as assessments, collection charges, late charges, or costs levied by a third party. An association shall not disqualify a nominee for failure to be current in payment of regular and special assessments if any of the following circumstances are true:
(I) The nominee has paid the regular assessment or special assessment under protest pursuant to Section 5658.
(II) The nominee has entered into and is in compliance with a payment plan pursuant to Section 5665.
(III) The nominee has not been provided the opportunity to engage in internal dispute resolution pursuant to Article 2 (commencing with Section 5900) of Chapter 10.
(iii) If the person, if elected, would be serving on the board at the same time as another person who holds a joint ownership interest in the same separate interest parcel as the person and the other person is either properly nominated for the current election or an incumbent director.
(iv) If that person has been a member of the association for less than one year.
(v) If the person has served the maximum number of terms or sequential terms allowed by the association.
(C) If an association requires a nominee to comply with any of the requirements in subparagraph (B), an association in its election rules shall also require a director to comply with the same requirements.

SEC. 2.

 Section 5105 of the Civil Code is amended to read:

5105.
 (a) An association shall adopt operating rules in accordance with the procedures prescribed by Article 5 (commencing with Section 4340) of Chapter 3, that do all of the following:
(1) Ensure that if any candidate or member advocating a point of view is provided access to association media, newsletters, or internet websites during a campaign, for purposes that are reasonably related to that election, equal access shall be provided to all candidates and members advocating a point of view, including those not endorsed by the board, for purposes that are reasonably related to the election. The association shall not edit or redact any content from these communications, but may include a statement specifying that the candidate or member, and not the association, is responsible for that content.
(2) Ensure access to the common area meeting space, if any exists, during a campaign, at no cost, to all candidates, including those who are not incumbents, and to all members advocating a point of view, including those not endorsed by the board, for purposes reasonably related to the election.
(3) Specify the qualifications for candidates for the board and any other elected position, subject to subdivision (b), and procedures for the nomination of candidates, consistent with the governing documents. A nomination or election procedure shall not be deemed reasonable if it disallows any member from nominating themself for election to the board.
(4) Specify the voting power of each membership, the authenticity, validity, and effect of proxies, and the voting period for elections, including the times at which polls will open and close, consistent with the governing documents.
(5) Specify a method of selecting one or three independent third parties as inspector or inspectors of elections utilizing one of the following methods:
(A) Appointment of the inspector or inspectors by the board.
(B) Election of the inspector or inspectors by the members of the association.
(C) Any other method for selecting the inspector or inspectors.
(6) Allow the inspector or inspectors to appoint and oversee additional persons to verify signatures and to count and tabulate votes as the inspector or inspectors deem appropriate, provided that the persons are independent third parties who meet the requirements in subdivision (b) of Section 5110.
(7) Require retention of, as association election materials, both a candidate registration list and a voter list. The candidate list shall include name and address of individuals nominated as a candidate for election to the board of directors. The voter list shall include name, voting power, and either the physical address of the voter’s separate interest, the parcel number, or both. The mailing address for the ballot shall be listed on the voter list if it differs from the physical address of the voter’s separate interest or if only the parcel number is used. The association shall permit members to verify the accuracy of their individual information on both lists at least 30 days before the ballots are distributed. The association or member shall report any errors or omissions to either list to the inspector or inspectors who shall make the corrections within two business days.
(b) An association shall disqualify a person from a nomination as a candidate for not being a member of the association at the time of the nomination.
(1) This subdivision does not restrict a developer from making a nomination of a nonmember candidate consistent with the voting power of the developer as set forth in the regulations of the Department of Real Estate and the association’s governing documents.
(2) If title to a separate interest parcel is held by a legal entity that is not a natural person, the governing authority of that legal entity shall have the power to appoint a natural person to be a member for purposes of this article.
(c) Through its bylaws or election operating rules adopted pursuant to subdivision (a) of Section 5105 only, an association may disqualify a person from nomination as a candidate pursuant to any of the following:
(1) Subject to paragraph (2) of subdivision (d), an association may require a nominee for a board seat, and a director during their board tenure, to be current in the payment of regular and special assessments, which are consumer debts subject to validation. If an association requires a nominee to be current in the payment of regular and special assessments, it shall also require a director to be current in the payment of regular and special assessments.
(2) An association may disqualify a person from nomination as a candidate if the person, if elected, would be serving on the board at the same time as another person who holds a joint ownership interest in the same separate interest parcel as the person and the other person is either properly nominated for the current election or an incumbent director.
(3) An association may disqualify a nominee if that person has been a member of the association for less than one year.
(4) An association may disqualify a nominee if that person discloses, or if the association is aware or becomes aware of, a past criminal conviction that would, if the person was elected, either prevent the association from purchasing the fidelity bond coverage insurance required by Section 5806 or terminate the association’s existing fidelity bond coverage. insurance coverage required by Section 5806 as to that person should the person be elected.
(d) An association may disqualify a person from nomination for nonpayment of regular and special assessments, but may not disqualify a nominee for nonpayment of fines, fines renamed as assessments, collection charges, late charges, or costs levied by a third party. The person shall not be disqualified for failure to be current in payment of regular and special assessments if either of the following circumstances is true:
(1) The person has paid the regular or special assessment under protest pursuant to Section 5658.
(2) The person has entered into and is in compliance with a payment plan pursuant to Section 5665.
(e) An association shall not disqualify a person from nomination if the person has not been provided the opportunity to engage in internal dispute resolution pursuant to Article 2 (commencing with Section 5900) of Chapter 10.
(f) Notwithstanding any other law, the rules adopted pursuant to this section may provide for the nomination of candidates from the floor of membership meetings or nomination by any other manner. Those rules may permit write-in candidates for ballots.
(g) Notwithstanding any other law, the rules adopted pursuant to this section shall do all of the following:
(1) Prohibit the denial of a ballot to a member for any reason other than not being a member at the time when ballots are distributed.
(2) Prohibit the denial of a ballot to a person with general power of attorney for a member.
(3) Require the ballot of a person with general power of attorney for a member to be counted if returned in a timely manner.
(4) Require the inspector or inspectors of elections to deliver, or cause to be delivered, at least 30 days before an election, to each member both of the following documents:
(A) The ballot or ballots.
(B) A copy of the election operating rules. Delivery of the election operating rules may be accomplished by either of the following methods:
(i) Posting the election operating rules to an internet website and including the corresponding internet website address on the ballot together with the phrase, in at least 12-point font: “The rules governing this election may be found here:”
(ii) Individual delivery.
(h) Election operating rules adopted pursuant to this section shall not be amended less than 90 days prior to an election.

SEC. 3.

 Section 5115 of the Civil Code is amended to read:

5115.
 (a) An association shall provide general notice of the procedure and deadline for submitting a nomination at least 30 days before any deadline for submitting a nomination. Individual notice shall be delivered pursuant to Section 4040 if individual notice is requested by a member. This subdivision shall only apply to elections of directors and to recall elections.
(b) An For elections of directors and for recall elections, an association shall provide general notice of all of the following at least 30 days before the ballots are distributed:
(1) The date and time by which, and the physical address where, ballots are to be returned by mail or handed to the inspector or inspectors of elections.
(2) The date, time, and location of the meeting at which ballots will be counted.
(3) The list of all candidates’ names that will appear on the ballot.
(4) Individual notice of the above paragraphs shall be delivered pursuant to Section 4040 if individual notice is requested by a member.
(c) Ballots and two preaddressed envelopes with instructions on how to return ballots shall be mailed by first-class mail or delivered by the association to every member not less than 30 days prior to the deadline for voting. In order to preserve confidentiality, a voter may not be identified by name, address, or lot, parcel, or unit number on the ballot. The association shall use as a model those procedures used by California counties for ensuring confidentiality of vote by mail ballots, including all of the following:
(1) The ballot itself is not signed by the voter, but is inserted into an envelope that is sealed. This envelope is inserted into a second envelope that is sealed. In the upper left-hand corner of the second envelope, the voter shall sign the voter’s name, indicate the voter’s name, and indicate the address or separate interest identifier that entitles the voter to vote.
(2) The second envelope is addressed to the inspector or inspectors of elections, who will be tallying the votes. The envelope may be mailed or delivered by hand to a location specified by the inspector or inspectors of elections. The member may request a receipt for delivery.
(d) A quorum shall be required only if so stated in the governing documents or other provisions of law. If a quorum is required by the governing documents, each ballot received by the inspector of elections shall be treated as a member present at a meeting for purposes of establishing a quorum.
(e) An association shall allow for cumulative voting using the secret ballot procedures provided in this section, if cumulative voting is provided for in the governing documents.
(f) Except for the meeting to count the votes required in subdivision (a) of Section 5120, an election may be conducted entirely by mail unless otherwise specified in the governing documents.
(g) In an election to approve an amendment of the governing documents, the text of the proposed amendment shall be delivered to the members with the ballot.

SEC. 4.

 Section 5200 of the Civil Code is amended to read:

5200.
 For the purposes of this article, the following definitions shall apply:
(a) “Association records” means all of the following:
(1) Any financial document required to be provided to a member in Article 7 (commencing with Section 5300) or in Sections 5565 and 5810.
(2) Any financial document or statement required to be provided in Article 2 (commencing with Section 4525) of Chapter 4.
(3) Interim financial statements, periodic or as compiled, containing any of the following:
(A) Balance sheet.
(B) Income and expense statement.
(C) Budget comparison.
(D) General ledger. A “general ledger” is a report that shows all transactions that occurred in an association account over a specified period of time.
The records described in this paragraph shall be prepared in accordance with an accrual or modified accrual basis of accounting.
(4) Executed contracts not otherwise privileged under law.
(5) Written board approval of vendor or contractor proposals or invoices.
(6) State and federal tax returns.
(7) Reserve account balances and records of payments made from reserve accounts.
(8) Agendas and minutes of meetings of the members, the board, and any committees appointed by the board pursuant to Section 7212 of the Corporations Code; excluding, however, minutes and other information from executive sessions of the board as described in Article 2 (commencing with Section 4900).
(9) Membership lists, including name, property address, mailing address, and email address, but not including information for members who have opted out pursuant to Section 5220.
(10) Check registers.
(11) The governing documents.
(12) An accounting prepared pursuant to subdivision (b) of Section 5520.
(13) An “enhanced association record” as defined in subdivision (b).
(14) “Association election materials” as defined in subdivision (c).
(b) “Enhanced association records” means invoices, receipts and canceled checks for payments made by the association, purchase orders approved by the association, bank account statements for bank accounts in which assessments are deposited or withdrawn, credit card statements for credit cards issued in the name of the association, statements for services rendered, and reimbursement requests submitted to the association.
(c) “Association election materials” means returned ballots, signed voter envelopes, the voter list of names, parcel numbers, and voters to whom ballots were to be sent, proxies, and the candidate registration list. Signed voter envelopes may be inspected but may not be copied. An association shall maintain association election materials for one year after the date of the election.

SEC. 5.

 Section 7511 of the Corporations Code is amended to read:

7511.
 (a) Whenever members are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 90 days before the date of the meeting to each member who, on the record date for notice of the meeting, is entitled to vote thereat; provided, however, that if notice is given by mail, and the notice is not mailed by first-class, registered, or certified mail, that notice shall be given not less than 20 days before the meeting. Subject to subdivision (f), and subdivision (b) of Section 7512, the notice shall state the place, date and time of the meeting, the means of electronic transmission by and to the corporation (Sections 20 and 21) or electronic video screen communication, if any, by which members may participate in that meeting, and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the regular meeting, those matters which the board, at the time the notice is given, intends to present for action by the members, but, except as provided in subdivision (b) of Section 7512, any proper matter may be presented at the meeting for the action. The notice of any meeting at which directors are to be elected shall include the names of all those who are nominees at the time the notice is given to members.
(b) Notice of a members’ meeting or any report shall be given personally, by electronic transmission by a corporation, or by mail or other means of written communication, addressed to a member at the address of the member appearing on the books of the corporation or given by the member to the corporation for purpose of notice; or if no such address appears or is given, at the place where the principal office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal office is located. An affidavit of giving of any notice or report in accordance with the provisions of this part, executed by the secretary, assistant secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to the member at the address of the member appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the member at the address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the member upon written demand of the member at the principal office of the corporation for a period of one year from the date of the giving of the notice or report to all other members.
Notice given by electronic transmission by the corporation under this subdivision shall be valid only if it complies with Section 20. Notwithstanding the foregoing, notice shall not be given by electronic transmission by the corporation under this subdivision after either of the following:
(1) The corporation is unable to deliver two consecutive notices to the member by that means.
(2) The inability to so deliver the notices to the member becomes known to the secretary, any assistant secretary, the transfer agent, or other person responsible for the giving of the notice.
(c) Upon request in writing to the corporation addressed to the attention of the chairman of the board, president, vice president, or secretary by any person (other than the board) entitled to call a special meeting of members, the officer forthwith shall cause notice to be given to the members entitled to vote that a meeting will be held at a time fixed by the board not less than 35 nor more than 90 days after the receipt of the request. If the corporation is a common interest development, as defined in Section 4100 of the Civil Code, the corporation shall cause notice to be given to the members entitled to vote that a meeting will be held at a time fixed by the board not less than 35 nor more than 150 days after receipt of the request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice or the superior court of the proper county shall summarily order the giving of the notice, after notice to the corporation giving it an opportunity to be heard. The court may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice.
(d) When a members’ meeting is adjourned to another time or place, unless the bylaws otherwise require and except as provided in this subdivision, notice need not be given of the adjourned meeting if the time and place thereof (or the means of electronic transmission by and to the corporation or electronic video screen communication, if any, by which members may participate) are announced at the meeting at which the adjournment is taken. No meeting may be adjourned for more than 45 days. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If after the adjournment a new record date is fixed for notice or voting, a notice of the adjourned meeting shall be given to each member who, on the record date for notice of the meeting, is entitled to vote at the meeting.
(e) The transactions of any meeting of members however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person (or, if proxies are allowed, by proxy), provides a waiver of notice or consent to the holding of the meeting or an approval of the minutes thereof in writing. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at the meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this part to be included in the notice but not so included, if the objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of members need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, unless otherwise provided in the articles or bylaws, except as provided in subdivision (f).
(f) Any approval of the members required under Section 7222, 7224, 7233, 7812, 8610, or 8719, other than unanimous approval by those entitled to vote, shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice.
(g) A court may find that notice not given in conformity with this section is still valid, if it was given in a fair and reasonable manner.