Copyright (c) 1998 School of Law, Santa Clara University
Santa Clara Law Review
1998
38 Santa Clara L. Rev. 1009
LENGTH: 33333 words
SYMPOSIUM: COMMON INTEREST DEVELOPMENT COMMUNITIES: PART I: A COMPARISON OF CALIFORNIA COMMON INTEREST DEVELOPMENT LAW AND THE UNIFORM COMMON INTEREST OWNERSHIP ACT
Katharine N. Rosenberry* & Curtis G. Sproul**
(c) Katharine N. Rosenberry, 1998
* Katharine N. Rosenberry is a professor at California Western School of Law, a member of the American Law Institute and its Consultative Group of the Restatement (Third) of Property (Servitudes), a member of the American College of Real Estate Lawyers and the College of Community Association Lawyers.
** Curtis G. Sproul is a partner in the firm of Weintraub, Genshlea & Sproul, where he specializes in community association law. He is the former chair of the State Bar Committee on Nonprofit Corporations and Unincorporated Associations and the Real Property Section, Subcommittee on Common Interest Developments. The authors wish to thank Gurdon H. Buck, Carl Lisman, Mary Howell, and John Hecht for their thoughtful comments on this article and Julia Cline for her research assistance.
SUMMARY:
... On November 12, 1996, California State Senator Byron Sher held
a hearing on the status of the Davis-Stirling Common Interest Development
Act ("Davis-Stirling" or "the Act") and community association law. ...
For example, "common interest community" is UCIOA term for "common interest
development," "common elements" is the term for "common area," "limited
common elements" is the term for "exclusive use common area," and "unit"
is the term for "separate interest." ... By contrast, in California, "a
common interest development is created whenever a separate interest coupled
with an interest in the common area or membership in the association is,
or has been, conveyed" provided that a declaration, a condominium plan
(if one exists), and a final or parcel map (if required), are recorded.
... For example, the declaration must identify the following: the type
of common interest community and the names of the community and association;
the name of every county in which any part of the community is situated,
a description of the boundaries; including the units (separate interests);
common elements (areas) and limited common elements (exclusive use common
areas); a description of rights reserved to the declarant; restrictions
on alienation; including leasing, and provisions such as those relating
to leasehold common interest communities (developments); allocated interests
(assessment obligations, ownership interests, and voting rights,) and common
elements (areas). ...
TEXT:
[*1009]
Introduction
On November 12, 1996, California State Senator Byron Sher held a hearing on the status of the Davis-Stirling Common Interest Development Act n1 ("Davis-Stirling" or "the Act") and community association law. n2 At the hearing, a variety of opinions were expressed. Two consistent themes emerged. Many who testified expressed the opinion that the law was [*1010] too confusing. Furthermore, it was noted that the problem was aggravated by the fact that the legislature has constantly changed the law. n3
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n1. Cal. Civ. Code 1350-1376 (West 1982 & Supp. 1998).
n2. California Legislature, Common Interest Development Issues After "Nahrstedt": The Summary Report from the Interim Hearing of the Senate Committee on Housing and Land Use (Nov. 12, 1996) [hereinafter Hearing].
n3. Hearing, supra note 2.
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The opinion that the law is confusing is supported by the fact that the legislature has amended Davis-Stirling Act thirty-nine times since 1987, even though it only contains twenty-seven sections. n4 By comparison, during the same period, the legislature amended the California version of the Uniform Commercial Code only twelve times even though it contains 11,004 sections. n5 The fact that Davis-Stirling is confusing and constantly changing, has led some to believe that the California legislature should consider adopting the Uniform Common Interest Ownership Act, n6 ("UCIOA"), or, at least, portions of it. Certainty and predictably, which does not presently exist in the community association field, are necessary so that associations are not forced to incur the expense of employing lawyers to attend every association meeting. n7
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n4. Cal. Civ. Code. 1350-1376 (West 1982 & Supp. 1998).
n5. Cal. Com. Code 1101-15104 (West 1964 & Supp. 1998).
n6. Unif. Common Interest Ownership Act 1-101 to 5-110 (1994), 7 pt. 1 U.L.A., 471-650 (1997).
n7. See Hearing, supra note 2, at 6-7 (testimony of Mary Howell).
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Before one can decide, whether to advocate adoption of UCIOA, in whole or in part, it is necessary to know more about the Act. The purpose of this article is to give a brief history of UCIOA, to compare it to California law and to encourage further discussion of a comprehensive revision of Davis-Stirling. It is impossible to provide an in depth discussion of all relevant portions of UCIOA or California law within the confines of this article. n8 Nevertheless, this article will discuss many of the major similarities and differences between the acts.
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n8. See e.g., Jeffrey G. Wagner et al., California Condominium and Planned Development Practice (Continuing Educ. of the Bar eds., 1984 & Supp. 1997); Curtis Sproul & Katharine Rosenberry, Advising California Condominium and Homeowner Associations (Continuing Educ. of the Bar eds., 1991 & Supp. 1998), for a fuller discussion of the California law in this field.
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Historical Background
Between 1977 and 1981, the National Conference of Commissioners on Uniform State Laws promulgated the Uni- [*1011] form Condominium Act, the Uniform Planned Community Act and the Model Real Estate Cooperative Act. n9 The Uniform Condominium Act, or parts of it, has been adopted by eighteen states. n10 The Uniform Planned Community Act has been adopted by Oregon and Pennsylvania; n11 and the Model Real Estate Cooperative Act, or parts of it, has been adopted in Virginia and Pennsylvania. n12
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n9. Unif. Common Interest Ownership Act, Prefatory Note (1994), 7 pt. 1 U.L.A. 472 (1997).
n10. Id. New Hampshire, Pennsylvania, West Virginia, Maine, Missouri, Nebraska, New Mexico, North Carolina, Rhode Island, Texas, Virginia, Washington, Washington, D.C., Arizona, Georgia, Louisiana, Michigan, and Wisconsin. Uniform Law Commission, Fact Sheet: A Few Facts About the Uniform Acts (Apr. 16, 1998) [hereinafter Fact Sheet] (on file with author).
n11. Fact Sheet, supra note 10.
n12. Id.
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Because each of these acts dealt with shared ownership or common interest communities, the national commissioners decided that they should be combined into a single act, dealing with all the forms of common interest ownership. n13 Therefore, in 1982 the Uniform Law Commissioners consolidated the various acts into the Uniform Common Interest Ownership Act. n14
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n13. Id.
n14. Id.
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Numerous organizations participated in the preparation of these various acts, including: the National Association of Home Builders, the Veterans Administration, the Mortgage Bankers Association of America, the Resort Timesharing Council, the U.S. Department of Housing and Urban Development, the American Bar Association, American Land Title Association, American Insurance Association, Community Associations Institute, Federal Home Loan Mortgage Corporation, American Bankers Association, National Association of Realtors, American Land Development Association, the Urban Land Institute, and the National Association of Housing Cooperatives. n15 Consequently, the Acts, including UCIOA, are the product of a compromise of competing views. n16
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n15. Id.
n16. For additional information on these Uniform Acts and UCIOA, see Norman Geis, Beyond the Condominium: The Uniform Common-Interest Ownership Act, 17 Real Prop. Prob. & Tr. J. 757 (1982); Carl H. Lisman, Evolution In The Law: Amendments to the Uniform Common Interest Ownership Act, in Drafting Documents for Condominiums PUD' & Golf Course Communities, C924 ALI-ABA 379 (May 5, 1994).
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[*1012]
I.
Overview
A.
Philosophy
Two of the purposes of UCIOA are to simplify the law of common interest communities and to promote the flow of funds to common interest communities between states. n17 Thus, the Act provides that it shall be construed to effectuate a uniform law among the states. n18
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n17. Unif. Common Interest Ownership Act 1-110 cmt. (1994), 7 pt. 1 U.L.A. 500 (1997).
n18. To date six states have adopted the Act and five more introduced versions of UCIOA in their legislatures in 1997. Fact Sheet, supra note 10. States that have adopted UCIOA are: Alaska, Colorado, Connecticut, Minnesota, Nevada and West Virginia. States that introduced the act in the 1997 legislature are: Missouri, Nebraska, New Jersey, Vermont and West Virginia. Id.
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UCIOA also permits flexibility in the creation of common interest communities; to that end, it provides default provisions. If the declarant (usually a corporation) wishes to provide alternate provisions, it may do so. n19 For example, a declaration can determine whether the interest in a cooperative is real or personal property. n20 It may also prohibit the reallocation of limited common elements that otherwise would be permitted. n21 Thirty-seven provisions of UCIOA can be altered by the declarant. n22
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n19. Unif. Common Interest Ownership Act 1-104 cmt. 1 (1994), 7 pt. 1 U.L.A. 490 (1997); see id. cmt. 4 for sections that can be altered in the declaration.
n20. Id. 1-105(a), at 492.
n21. Id. 2-108, at 532.
n22. Id. 1-101 to 5-110, at 471-650.
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Although many of its provisions may be altered by the declarant, UCIOA provides two safeguards for consumers. First, some sections of UCIOA do not permit the declarant to alter them. For example, many of the consumer protection provisions can not be altered. Second, a declarant cannot use any device, such as obtaining a power of attorney from the owners, to evade the limitations or prohibitions of the Act. n23 In many jurisdictions, developers obtain powers of attorney from the owners permitting the developer to unilaterally exercise rights that require 100% approval of the owners. n24 UCIOA prohibits such practices. n25
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n23. Id. 1-104, at 489-92.
n24. See id. cmt. 3, at 490.
n25. Id.
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[*1013] The philosophy of Davis-Stirling is similar to that of UCIOA. It contains default provisions and provides consumer protection provisions that may not be altered by the declaration. The main difference, however, is that Davis-Stirling does not permit as many provisions to be altered. n26 Moreover, each year more provisions are amended or added that reduce flexibility. These provisions are discussed throughout the article.
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n26. Cal. Civ. Code 1350-1376 (West 1982 & Supp. 1998).
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Another important difference between the two Acts is their approach to commercial and industrial common interest developments. While Davis-Stirling exempts commercial and industrial common interest developments from some of its sections, n27 UCIOA permits declarants of these developments to exempt the community from the entire Act. n28 These exemptions are discussed below. Consequently, UCIOA permits greater flexibility than does California law.
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n27. See Cal. Civ. Code 1373 (West 1982 & Supp. 1998).
n28. Unif. Common Interest Ownership Act 1-207(b) (1994), 7 pt. 1 U.L.A. 513-14 (1997). UCIOA also provides flexibility through the concept of development rights. For example, subject to restrictions provided in the act, the size and density of a project may be increased, the mix of units, common elements and limited common elements can be changed and the project can be reduced in size. See id. 1-103(14) cmt. 15, at 486-87.
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B.
Application of Acts
It is important to note that UCIOA does not apply to all common interest communities, as does Davis-Stirling. UCIOA does not apply to some communities that existed on the date of its adoption. It also exempts some communities that are created even after adoption.
UCIOA uses a three-pronged approach to the problem of retroactivity. First, subject to some exceptions, discussed below, UCIOA applies to all common interest communities created after the Act becomes law. n29 Second, certain sections of the Act apply to all pre-existing communities, but only prospectively in a manner that does not invalidate provisions of the governing documents (as construed under the law in existence at the time UCIOA is adopted). n30 Examples of such provisions include: those relating to eminent domain, the de- [*1014] scription of the units, and merger and consolidation. n31 Third, owners may amend the declaration and bylaws existing prior to the effective date of the act, even if the amendment would not have been permitted by previous law, so long as (1) the owners adopt the amendment consistent with procedures required by the previous law, and (2) the substance of the amendment does not violate UCIOA.
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n29. Id. 1-201, at 505.
n30. Id. 1-204, at 508-09.
n31. Additional provisions of UCIOA that apply to existing common interest communities include section 1-205 (providing exceptions for small pre-existing cooperatives and planned communities), section 1-105 (relating to the separate taxation of units), section 1-106 (pertaining to local ordinances and state law requirements), section 2-103 (pertaining to the construction of declarations and bylaws), sections 3-102(a)(1) through (6) and (11) through (16) (pertaining to the powers of the association), section 3-111 (relating to tort and contract liability), section 3-116 (relating to assessment liens), section 3-118 (pertaining to association records) section 4-109 (pertaining to resale of units), and section 4-117 (pertaining to attorney fees.) Unif. Common Interest Ownership Act 1-105, 1-106, 1-205, 2-103, 3-102, 3-111, 3-116, 4-109, 4-117 (1994), 7 pt. 1 U.L.A. 492 et seq. (1997). In addition, section 1-103 provides that the definitions apply to the extent necessary in construing any of the sections of the act, but only to events occurring after enactment and to the extent the definitions do not invalidate the pre-existing governing documents. Id. 1-204, at 509.
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To illustrate this three-pronged approach, assume UCIOA becomes effective in California on January 1, 1999. With some exceptions, discussed below, the Act would apply to all common interest communities created on, or after, January 1, 1999. In addition, certain provisions would apply to all common interest communities, regardless of when the community was created, but only prospectively, and only if the provisions are consistent with the governing documents. Thus, if a city began condemnation proceedings after January 1, 1999, the eminent domain provision section 1-107 of UCIOA, would apply even to communities created prior to January 1, 1999, provided the provision was not inconsistent with the declaration or bylaws of the community. n32
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n32. Id. 1-107, at 497.
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Finally, amendments to any declaration or bylaws occurring after January 1, 1999, could incorporate provisions of UCIOA, even if previous law would have prohibited the amendment. The procedures for adopting the amendment, however, must be consistent with the declaration and bylaws. For example, if the owners wished to amend the declaration to permit alteration of units in a manner prohibited by previous law, they could do so if they satisfied the procedures previously required for amending the documents. Thus, if the [*1015] declaration provided that amendments were valid only upon approval of owners holding 75% of the votes in the association, 75% would have to approve the amendment, not the lower percentage permitted by UCIOA. n33
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n33. Unif. Common Interest Ownership Act 2-117(a) (1994), 7 pt. 1 U.L.A. 546 (1997).
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When the legislature enacted Davis-Stirling, it intended to apply the Act to both new and existing common interest developments. To make its intention clear, Assemblyman Stirling introduced urgency legislation in 1986 which became effective immediately upon passage. n34 This legislation amended section 1352 of the California Civil Code to provide that Davis-Stirling applies "whenever a separate interest coupled with an interest in the common area or membership in the association is, or has been, conveyed provided" certain documents are recorded. n35
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n34. Act of Feb. 25, 1986, c. 9, 1986 Cal. Legis. Serv. 32 (West) (codified at Cal. Civ. Code 1352).
n35. Cal. Civ. Code 1352 (West 1982 & Supp. 1998) (emphasis added). Because section 1352 provides that a common interest development is not created unless the declaration, final or parcel map and condominium plan if one exists are recorded an interesting question arises. What happens if the project is clearly a common interest development but the declarant forgets to record one of the required documents such as the condominium plan?
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Even before the legislature enacted Davis-Stirling, amendments to California condominium law applied to developments in existence on the date the statute was amended. In other words, the new law applied retroactively. For example, the provisions of the Condominium Act, pertaining to assessments n36 applied to all condominiums on the date of the statute's enactment. Because the legislature has applied Davis-Stirling and its amendments retroactively n37 to existing developments, it is likely that the legislature will apply future changes in the law of common interest developments to existing developments. Although one must consider potential constitutional challenges when applying amendments to existing developments, n38 it would confuse the public to have different laws applicable to different common interest developments.
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n36. Former Cal. Civ. Code 1350-1370 (repealed by stats. 1985 c. 874 13).
n37. Cal. Civ. Code 1352 (West 1982 & Supp. 1998).
n38. See Katharine Rosenberry, You Can't Raise Assessments. I Have A Contract! The Legislature & Impairment of Contract, 8 Cal. Real. Prop. J. 1, 16 (1990).
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[*1016] As mentioned, UCIOA, unlike California law, exempts some developments from the Act. For example, common interest communities that contain no residences are exempt. n39 Also, common interest communities that are exclusively commercial or industrial are not subject to the Act unless the declaration provides otherwise. n40
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n39. Unif. Common Interest Ownership Act (1994).
n40. Unif. Common Interest Ownership Act 1-207(b) (1994), 7 pt. 1 U.L.A. 513 (1997).
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The declaration may provide either that the entire Act applies or that only the provisions on separate taxation, applicability of local ordinances, and eminent domain apply. n41 If the declaration applies the entire Act, then it can also require the continuation of certain contracts and leases after turnover of control, even though these contracts otherwise would be subject to cancellation. n42 Further, the declaration may contain provisions permitting the declarant to use proxies to obtain results that could not be accomplished under the Act. n43
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n41. Id. 1-207(c), at 513.
n42. Id. 1-207(d)(1), at 513.
n43. Id. 1-207(d)(2), at 513. Note, however, the declaration may only include these provisions if they are not unconscionable. Id. 1-207(d).
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In contrast, Davis-Stirling provides only a limited exemption for commercial and industrial common interest developments. Section 1373 of the California Civil Code provides that section 1356 (pertaining to court ordered amendments), section 1365 (relating to financial disclosures), sections 1366.1 and 1363 (relating to assessments), and section 1363 (relating to budget preparation) are not applicable to commercial and industrial common interest developments. n44 The remaining provisions of Davis-Stirling are applicable to these developments.
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n44. Cal. Civ. Code 1373 (west 1982 & Supp. 1998).
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The only reason Davis-Stirling applied to all common interest developments was to make California law consistent with the version of UCIOA in existence at the time. In 1994, UCIOA was amended to permit developers to exempt commercial and industrial developments from the entire Act. n45 Thus, it seems logical to amend Davis-Stirling to give commercial and industrial developers the same rights to exempt such communities.
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n45. Unif. Common Interest Ownership Act 1-207 cmt. 1 (1994), 7 pt. 1 U.L.A. 514 (1997).
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[*1017] Further, the legislature has amended Davis-Stirling since 1988, without also amending section 1373 of the California Civil Code. Also, commercial and industrial developments are not exempt from subsequently enacted provisions. n46 They should be. The consumer protection provisions in Davis-Stirling were not drafted for commercial and industrial developments.
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n46. For example, they are not exempt from section 1375 of the California Civil Code relating to the filing of construction defect lawsuits. See Cal. Civ. Code 1375 (West 1982 & Supp. 1998).
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Another distinction between the Acts is that UCIOA, unlike Davis-Stirling, n47 does not require some small communities to be governed by all of the provisions of the Act. For example, under UCIOA, cooperatives containing twelve or fewer units (separate interests) and no development rights are subject only to the provisions regarding eminent domain and the prohibition on governments treating identical structures differently. n48 If the declarant chooses, it may provide in the declaration that the entire Act applies. n49 If the declarant chooses to incorporate some, but not all, of the provisions of UCIOA it may do so. n50 UCIOA provides that those provisions are to be governed by contract law, not Davis-Stirling. n51
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n47. Although Davis-Stirling does not provide exemptions for small communities, the Subdivided Lands Act (which controls the initial sale of separate interests) does not apply to residential developments of four separate interests or less. See Cal. Bus. & Prof. Code 11000.1(a) (West 1987 & Supp. 1998).
n48. Unif. Common Interest Ownership Act 1-202 (1994), 7 pt. 1 U.L.A. 506 (1997). UCIOA, however, applies to all condominiums. Id. 1-202, at 505.
n49. Id.
n50. Id. cmt. 2.
n51. Id.
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A similar exception is provided for planned communities that have fewer than twelve units and an annual common expense liability for residential units (exclusive of optional fees and insurance premiums) of $ 300, measured in 1979 dollars (now about $ 500). n52 Such communities are only subject to the provisions dealing with taxation, n53 eminent domain n54 and state and local government discrimination based [*1018] on the form of ownership. n55 An exemption also exists for communities created before the effective date of UCIOA. n56 In order to qualify for exemption, the pre-existing cooperative or planned community must contain no more than twelve units and must not be subject to any development rights. n57 Finally, the Act exempts mixed-use projects, unless the residential units satisfy the definition of "common interest community" in section 1-103(7). n58
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n52. Id. 1-203, at 507-08. UCIOA provides a formula for increasing this amount over time. See id. 1-115, at 503. Also, comments to UCIOA 1-203 clearly provide that a declarant cannot low ball, or create artificially low assessments, merely to be exempt from the Act. Id. 1-203 cmt. 2(a)-(b), at 507-08.
n53. Id. 1-105, at 492.
n54. Id. 1-107, at 497.
n55. Unif. Common Interest Ownership Act 1-106 (1994), 7 pt. 1 U.L.A. 495 (1997).
n56. Id. 1-205, at 510.
n57. Id.
n58. Id. 1-103(7), at 479. Section 1-103(7) provides that:
"Common interest community" means real estate with respect to which a person, by virtue of his ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration. "Ownership of a unit" does not include holding a leasehold interest of less than [20] years in a unit, including renewal options.
Id.
Some of the public offering provisions of UCIOA, also, do not apply to out of state communities that are sold in state. Id. 1-208, at 515. However, section 1-208 provides that sections 4-102 through 4-108 apply to contracts signed in the state adopting UCIOA unless exempt under section 4-101(b). Unif. Common Interest Ownership Act 1-208 (1994), 7 pt. 1 U.L.A. 515 (1997).
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The task force members who assisted in the drafting of Davis-Stirling were aware of the exemptions for small developments that existed in UCIOA. They considered proposing similar exemptions in Davis-Stirling. There was not sufficient time to work out the details, however, so these exemptions were not proposed. n59 Since 1985, several people have proposed exempting smaller developments. Section 1375 of the California Civil Code, which became effective in 1996, does exempt developments with fewer than twenty units. n60 The legislature should consider adopting the exemptions provided in UCIOA, with one exception.
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n59. Katharine Rosenberry was Senior Consultant to the California Select Assembly Committee on Common Interest Developments. In that capacity she was responsible for chairing two task forces that proposed provisions for Davis-Stirling and corresponding with all individuals that commented on the proposed Act, was the principle drafter of the Act, and attended all the committee meetings and the hearings of the Assembly and Senate pertaining to Davis-Stirling. Curtis Sproul was a member of one of the task forces and participated in drafting portions of the Act and was a member of a task force created by the Sate Bar of California to assist in drafting the 1980 amendments to the Nonprofit Corporation Code.
n60. Cal. Civ. Code 1375(d), 1375(h)(4)(i) (West 1982 & Supp. 1998).
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There are no exceptions for small condominium projects [*1019] in UCIOA. The reasons for the distinction are historical and are not based on differences between the communities. n61 Therefore, if California adopts the concept of exempting small developments from the provisions of Davis-Stirling, it should treat all common interest developments similarly, as it currently does.
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n61. Telephone interview with Carl H. Lisman, Chair of the Standby Committee, Common Interest Ownership Act (1994), the Committee that prepared UCIOA (1994) for the National Conference of Commissioners on Uniform State Laws (Sept. 21, 1997). Historically planned communities and cooperatives were created by the governing documents while condominiums were created by statute.
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C.
Rules for Construction of Statute
UCIOA contains a provision similar to section 1-104 of the Uniform Commercial Code. It provides that UCIOA is a general act intended for unified coverage, and that no part of it shall be construed to be void if such construction can be avoided. n62 There is no similar provision in Davis-Stirling, but the legislature should not be opposed to adopting such a provision because it is consistent with the original purpose of the Davis-Stirling Act.
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n62. Unif. Common Interest Ownership Act 1-109 (1994), 7 pt. 1 U.L.A. 500 (1997).
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Other provisions in UCIOA, relating to statutory construction, include section 1-111 (which provides that the provisions of the Act are severable), n63 section 1-112 (which provide that the court can refuse to enforce a contract if it finds the contract unconscionable), n64 and section 1-113 (which implies in every contract an obligation of good faith in its performance or enforcement). n65 "Good faith" is defined in the Comments to section 1-113 as ""honesty in fact' and observance of reasonable standards of fair dealing." n66 Sections 1-112 and 1-113 are patterned after similar provisions in the Uniform Commercial Code. n67 These provisions of the Uniform Commercial Code have been adopted in the California Commercial Code. n68
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n63. Id. 1-111, at 501.
n64. Id. 1-112, at 501.
n65. Id. 1-113, at 502.
n66. Id.
n67. U.C.C. 2-302, 1-201 (1998).
n68. Cal. Com. Code 1203 (West 1964 & Supp. 1998).
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If these sections are considered for adoption by Davis- [*1020] Stirling, section 1-113 should be clarified. The provision was presumably intended to apply only to the contracts to which the association is a party, and not to the declaration; but the section does not make this clear. n69
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n69. Good faith is only one aspect of the duty the directors and officers owe under the declaration. See Unif. Common Interest Ownership Act 3-103 (1994), 7 pt. 1 U.L.A. 575-77 (1997).
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Section 2-103 of UCIOA is similar in purpose to section 1370 of Davis-Stirling. UCIOA provides that all provisions of the declaration and bylaws are severable n70 which encourages liberal construction; Davis-Stirling provides that the governing documents will be liberally construed. Both sections also provide that the Rule Against Perpetuities does not apply to invalidate provisions of the governing documents; however, UCIOA's provision is slightly more restrictive. n71 UCIOA, unlike Davis-Stirling, specifically provides that if there is a conflict between the declaration and bylaws, the declaration controls. Although it is assumed by association practitioners in California that the declaration controls, it would be beneficial for a statute to so provide.
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n70. Id. 2-103(a), at 520.
n71. Id. 2-103(b), at 520.
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II.
Terminology
A.
Similar Definitions: Association
Some of the definitions and terms used in UCIOA, such as the definition of "association," are similar to those used in Davis-Stirling. Under both Davis-Stirling and UCIOA, the owners are members of the association, and the association is responsible for governing the community. n72 A potential difference, however, is that under UCIOA, the association must consist exclusively of owners. n73 In some California common interest developments the association also consists of "associate members" who are not owners. n74 This topic is dis- [*1021] cussed below. n75
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n72. See Cal. Civ. Code 1351(a), 1363 (West 1982 & Supp. 1998); Unif. Common Interest Ownership Act 1-103(3) (1994), 7 pt. 1 U.L.A. 479 (1997); Id. 3-101, at 571-72.
n73. Unif. Common Interest Ownership Act 3-101.
n74. For example, within the boundaries of some California common interest developments there are golf courses operated as private clubs (rather than being association common facilities). Members of the club may be given rights in the Declaration to become non-voting associate members of the association with rights to use certain recreation facilities, such as a swimming pool or tennis courts.
n75. See discussion supra Part V.A.1.
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Another significant difference between Davis-Stirling and UCIOA, is that under UCIOA, the association can be incorporated as either a for-profit or nonprofit corporation. n76 While Davis-Stirling does not specifically state that the association must be incorporated as a mutual benefit nonprofit corporation, it implies as much. Again, this topic is discussed below. n77
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n76. Unif. Common Interest Ownership Act 3-101 (1994), 7 pt. 1 U.L.A. 571-72 (1997).
n77. See discussion supra Part III.B.2.
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B.
Similar Definitions but Different Terms: Common Interest Community, Common Elements, Limited Common Elements and Unit
Other definitions in the two acts are very similar, but the terms used to describe them are slightly different. For example, "common interest community" n78 is UCIOA term for "common interest development," "common elements" n79 is the term for "common area," "limited common elements" n80 is the term for "exclusive use common area," and "unit" n81 is the term for "separate interest." n82 Thus, under UCIOA, a "lot" is a "unit." In the discussion that follows, when a UCIOA term is used, which is different from the corresponding term in Davis-Stirling, the Davis-Stirling term will be placed in parenthesis.
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n78. Unif. Common Interest Ownership Act 1-103(7) (1994), 7 pt. 1 U.L.A. 479 (1997).
n79. Id. 1-103(4), at 479.
n80. Id. 1-103(19), at 480.
n81. Id. 1-103(31), at 482.
n82. The authors find the use of the term "unit" to apply to both "unit" and "lot" unnecessarily confusing.
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C.
Similar Terms But Different Definitions: Types of Common Interest Developments
Finally, some terms in the two Acts are similar, but their definitions are different. The most significant differences between definitions in the two Acts relate to the definitions of the various common interest communities (developments). Both Acts specifically identify planned communities (developments), condominiums, and cooperatives as common [*1022] interest communities (developments). n83 However, the definitions of "condominium" and "planned community" in the two Acts are different. UCIOA and Davis-Stirling both provide that in a condominium, an owner has a tenancy in common interest in the common area, coupled with a separate interest in a unit. n84 Both acts also permit the association to own property in its own name. UCIOA specifically provides that the association may own property that is not part of the common scheme and is not subject to the Act. n85 Davis-Stirling, on the other hand, does not state whether or not the association may own common area that is not subject to the provisions of Davis-Stirling.
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n83. Unif. Common Interest Ownership Act 1-103(7), (8), (10), (23) (1994), 7 pt. 1 U.L.A. 479-88 (1997); Cal. Civ. Code 1351(c) (West 1982 & Supp 1998).
n84. Unif. Common Interest Ownership Act 1-103(8) (1994), 7 pt. 1 U.L.A. 479 (1997); Cal. Civ. Code 1351(f) (West 1982 & Supp. 1998). Davis-Stirling does not specifically prohibit the creation of common area that is not subject to the Act, but it does not authorize the creation of such common area and it was assumed during the drafting and legislative process that Davis-Stirling would apply to all common area.
n85. See Unif. Common Interest Ownership Act 1-103 cmt. 7 (1994), 7 pt. 1 U.L.A. 483-84 (1997).
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Depending on the circumstances, there may be advantages to an association owning property that is not subject to the Act. For example, assume an association takes title to a unit through a foreclosure sale when its lien for delinquent assessments is foreclosed. Under UCIOA, the association would be able to sell the unit without having to go through the difficult process of selling common area. This flexibility is desirable.
Another significant difference occurs between the definition of "planned community" in UCIOA and "planned development" in Davis-Stirling. UCIOA's definition is similar to all jurisdictions, except California's. Under UCIOA, a planned community is one in which an association owns the common elements (area). n86 In a planned development in California, either the association may own the common area, or the owners may own it as tenants in common. n87 Thus, in California, a developer can create two physically identical projects in which the common area is owned as tenants in [*1023] common and call one a condominium and the other a planned development.
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n86. Unif. Common Interest Ownership Act 1-103(23) (1994), 7 pt. 1 U.L.A. 481 (1997); see also id. 1-103(8), at 479-80; and id. 1-103(10), at 480 (defining condominium and cooperative respectively).
n87. Cal. Civ. Code 1351(k) (West 1982 & Supp. 1998).
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This anomaly arose because at the time Davis-Stirling was enacted, some California local governments treated planned developments and condominiums differently based solely on the legal form of ownership, rather than on the physical characteristics of the development. Thus, the attorneys for developers argued that the definition of "planned development" should remain as it was so the developer could chose to identify the project based on whatever local and state regulation was the most lenient. Under UCIOA, this problem is resolved, in part, by section 1-106, which limits government's ability to discriminate based on the form of ownership. n88
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n88. See discussion infra Part III.E.2.
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UCIOA and Davis-Stirling also differ in that Davis-Stirling includes two types of common interest developments not specifically mentioned in UCIOA. UCIOA does not specifically mention limited equity housing cooperatives or community apartment projects as common interest communities (developments). n89 Both UCIOA and Davis-Stirling define a cooperative as a form of common interest community in which the association owns the development and the owners have a right to the exclusive possession of a unit. n90 However, under California law, a stock cooperative specifically includes a "limited equity housing cooperative" which is a cooperative organized for a public purpose to provide low and moderate income housing under the California Health and Safety Code. n91 UCIOA's definition of cooperative would include a limited equity housing cooperative, but it is not specifically mentioned. n92
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n89. Unif. Common Interest Ownership Act 1-103(7) (1994), 7 pt. 1 U.L.A. 481 (1997) states: ""Common interest community' means real estate with respect to which a person, by virtue of is ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration." This definition is sufficiently broad to include community apartment projects and limited equity housing cooperatives, but neither of these is specifically mentioned as are condominiums and planned communities. Id.
n90. Unif. Common Interest Ownership Act 1-103(10) (1994), 7 pt. 1 U.L.A. 480 (1997); Cal. Civ. Code 1351(m) (West 1982 & Supp. 1998).
n91. See California Condominium and Planned Development Practice 1.25-1.26 (Continuing Educ. of the Bar eds., 1984 & Supp. 1998) for a discussion of limited equity housing cooperatives.
n92. Unif. Common Interest Ownership Act 1-103(10) (1994), 7 pt. 1 U.L.A. 480 (1997).
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[*1024] Davis-Stirling also identifies community apartment projects as common interest developments. These are similar to cooperatives because, in each, the owner has the exclusive right to occupy a unit. n93 They differ, however, because in a community apartment project, the development is owned by the owners as tenants-in-common; whereas in a cooperative, the development is owned by a corporation. The term "community apartment" is not only foreign to UCIOA, but the authors are unaware of any jurisdiction, other than California, that recognizes it as a form of common interest development.
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n93. A community apartment project is a common interest development in which an undivided interest in land is coupled with the right to exclusive occupancy of a unit. See Cal. Civ. Code 1351(d) (West 1982 & Supp. 1998).
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D.
Definitions Not Included in Davis-Stirling: "Master Association" and "Master Planned Community"
While the two definitions discussed above exist in Davis-Stirling, and not UCIOA, other definitions exist in UCIOA and not in Davis-Stirling. One definition existing in UCIOA, and not Davis-Stirling, is "master association." n94 A master association is one which governs or manages more than one condominium, cooperative (stock cooperative) or planned community (development). n95 It may be established by either the initial declaration for a community, or the owners of two or more common interest communities (developments) may amend their declarations to delegate duties to a master association. n96 The owners can establish the master association as the only owners' association, or as a separate association with each of the component common interest communities also having their own subassociations. n97
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n94. Unif. Common Interest Ownership Act 1-103(20) (1994), 7 pt. 1 U.L.A. 480 (1997).
n95. Under UCIOA, a master association does not own common area. Unif. Common Interest Ownership Act 1-103(20) (1994), 7 pt. 1 U.L.A. 480 (1997); Id. 2-120, at 564-65.
n96. Id. 2-120 cmt. 3.
n97. Id.
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Once the master association is established, provisions of UCIOA control its operation. n98 For example, a master association may only adopt budgets and collect assessments from unit owners to the extent expressly permitted in the declara- [*1025] tions for the communities that are served by the master association, unless the master association is itself created as a single unit owners' association. n99 Further, if the declaration of a common interest community provides that the board may delegate certain powers to a master association, the board members are not liable for the acts or omissions of the master association with respect to those powers following the delegations. n100
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n98. Id. 2-120, at 564-65.
n99. Unif. Common Interest Ownership Act 2-120 (1994), 7 pt. 1 U.L.A. 564-65 (1997).
n100. Id.
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Davis-Stirling does not have similar provisions. The Department of Real Estate (hereinafter DRE) Regulations, n101 enacted pursuant to the Subdivided Lands Act, n102 however, contain regulatory provisions relating to "master plan developments." "Master planned developments" are defined as planned development subdivisions meeting the following criteria: (1) the master planned development must generally consist of 500 or more separate residential interests and one or more subdivisions, which may include time-share projects or other residential, recreational, commercial or mixed residential and non-residential projects; (2) it must be developed in two or more phases; and, (3) it must be managed by a master association "that is responsible for the maintenance and operation of areas and/or facilities affecting the Master Planned Development and enforcement of use restrictions pertaining to the Master Planned Development." n103
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n101. Cal. Code Regs. tit. 10, ch. 6 (1998).
n102. Cal. Bus. & Prof. Code 11000-11200 (West 1987 & Supp. 1998).
n103. Cal. Code Regs. tit. 10, 2792.32(a) (1997) also provides if a subdivider can demonstrate specific facts indicating why the development is a Master Planned Subdivision even though it doesn't meet these criteria the Department of Real Estate may still consider it such a subdivision.
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The regulations address: voting rights, quorums for membership meetings, election of the governing board, length of time in which the declarant may exercise control, and the creation of subassociations to operate within various phases of the development. n104 These types of provisions are also set forth in UCIOA. n105
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n104. Id.
n105. Unif. Common Interest Ownership Act 2-120(d) (1994), 7 pt. 1 U.L.A. 564-65 (1997).
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Even though master associations are addressed in the DRE regulations, UCIOA provisions should be included in [*1026] Davis-Stirling for several reasons. First, the Department of Real Estate Regulations have limited jurisdiction. They only apply to the initial declaration and continue only as long as the declarant is in control of the property. n106 Second, because UCIOA provides numerous "default provisions" when the declaration is silent, its approach to master associations provides greater certainty in the law relating to the governance of these associations. Third, the definition of master association in UCIOA is more flexible, in that it does not specify a size requirement. n107 Finally, property rights should be created by the state legislature; not by administrative agencies. Therefore, the legislature should consider adopting the provisions of UCIOA pertaining to master associations.
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n106. Cal. Code Regs. tit. 10 2792.32(b) (1997), Cal. Code Regs. tit. 10 2792.32(c)(f)(g) & (i) (1997).
n107. Unif. Common Interest Ownership Act 2-120(d) (1994), 7 pt. 1 U.L.A. 564-65 (1997).
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III.
Creation of Common Interest Communities
A.
Time of Creation
Under UCIOA a common interest community is created "only by recording a declaration executed in the same manner as a deed and, in a cooperative, by conveying the real estate subject to the declaration to the association." n108 The declaration must be recorded and indexed in the name of the common interest community. It must also be recorded in the name of each person executing the declaration, including the name of the lessor, if the common interest community is on leased property. n109
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n108. Id. 2-101, at 515-16.
n109. Id. 2-106, at 527-28.
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Although a common interest community is not created until the above requirements have been satisfied, any project that satisfies the definition of common interest community in section 1-103(7) of UCIOA is subject to the act, even if the requirements have not been met. n110 Thus, a developer cannot avoid the Act by merely failing to record a declaration.
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n110. Id. 2-101 cmt. 3, at 516.
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By contrast, in California, "a common interest development is created whenever a separate interest coupled with an interest in the common area or membership in the associa- [*1027] tion is, or has been, conveyed" provided that a declaration, a condominium plan (if one exists), and a final or parcel map (if required), are recorded. n111 Thus, California law differs from UCIOA in that a common interest development is not created in California until an interest is conveyed, whereas under UCIOA, a common interest community is created when the declaration is recorded. Although it is unusual for a developer to record a declaration, and not convey units or lots, n112 under California law, a developer is permitted to unilaterally change the character of the project until the first unit is conveyed. Consequently, California law permits somewhat more flexibility.
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n111. Cal. Civ. Code 1352 (West 1982 & Supp. 1998).
n112. It is not uncommon, however, for developers, who create apartment projects that have the potential for becoming condominiums, to record a declaration at the time the building is developed and not convey separate interests. This practice preserves the greatest flexibility for the developer by protecting against future moratoriums on the conversion of apartments to less affordable housing stock.
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California law also differs in that it does not require the declaration to be recorded under the association's name or under the name of each person signing the declaration. n113 Having the project indexed under the association's name, in particular, could make a title search easier. Therefore, the legislature should consider adopting this provision of UCIOA.
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n113. Cal. Civ. Code 1353 (West 1982 & Supp. 1998).
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B.
Governing Documents
1.
Declaration
Davis-Stirling provides that governing documents include the declaration, the bylaws, and the articles of incorporation. n114 It also provides that a declaration recorded on or after January 1, 1986, must identify the type of development and contain a legal description of the development, the covenants, the name of the association and any other provisions the declarant or owners consider appropriate. n115
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n114. Cal. Civ. Code 1351(j) (West 1982 & Supp. 1998).
n115. Cal. Civ. Code 1353 (West 1982 & Supp. 1998).
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In addition, the DRE regulations require the governing documents of those developments within its jurisdiction to contain "reasonable arrangements." n116
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n116. The Subdivided Lands Act gives the DRE the authority to control, among other things, the sale of separate interests in residential common interest developments of five or more units. See Cal. Bus. & Prof. Code 11000, 11000.1. (West 1987 & Supp. 1998). Pursuant to this authority the DRE enacted regulations which requires governing documents of common interest developments to contain "reasonable arrangements." See Cal. Code Regs. tit. 10, 2792.15-2792.28 (1997). These provisions address issues regarding the operation of common interest developments such as transfer of common areas, assessments, meetings and voting rights, as well as many others. See id.
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[*1028] UCIOA does not specifically define governing documents. Section 2-105, however, requires a declaration and is very specific about what must be contained in the declaration. n117 For example, the declaration must identify the following: the type of common interest community and the names of the community and association; the name of every county in which any part of the community is situated, a description of the boundaries; including the units (separate interests); common elements (areas) and limited common elements (exclusive use common areas); a description of rights reserved to the declarant; restrictions on alienation; including leasing, and provisions such as those relating to leasehold common interest communities (developments); allocated interests (assessment obligations, ownership interests, and voting rights,) and common elements (areas). n118
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n117. Unif. Common Interest Ownership Act 2105 (1994), 7 pt. 1 U.L.A. 522-24 (1997).
n118. Id. 2-105(a), at 522-24.
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UCIOA has special requirements if the community is on leasehold property. For example, section 2-106 of UCIOA provides that if the expiration of a lease will terminate or reduce the size of the community, the landlord must sign the declaration. n119 It also requires the declaration to provide the recording data for the lease, or a statement as to where the lease may be inspected, and the date the lease is scheduled to expire. n120 Once a declaration for a leasehold condominium or planned community is recorded, both the lessor and lessee of the ground lease are precluded from terminating the leasehold interest of any owner so long as that owner makes timely payment of his or her share of the rent and complies with the covenants. n121 Furthermore, the rights of any individual unit owner cannot be affected by the failure of other owners to pay rent or fulfill covenants. n122
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n119. Id. 2-106(a), at 527.
n120. Id. 2-106(a)(1)-(2), at 527.
n121. Id. 2-106(b), at 527.
n122. Id.
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UCIOA also requires the declaration to deal with allo- [*1029] cated interests, which include an owner's interest in the common area, assessment obligations and voting rights. n123 A significant difference between UCIOA and California law is that UCIOA provides for the allocation of voting rights, which cannot discriminate in favor of units owned by the declarant. n124 In other words the developer may not have more votes per unit (separate interest) or square footage than the other owners. In contrast, California declarants may have three votes for each separate interest owned during the initial phases of the project, a practice which is authorized by the DRE. n125
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n123. Unif. Common Interest Ownership Act 2-107 (1994), 7 pt. 1 U.L.A. 529-30 (1997).
n124. Id. 2107(d), at 530.
n125. See Cal. Code Regs. tit. 10, 2792.18 (1997).
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Although UCIOA does not permit weighted voting, it protects the declarant through the concept of "special declarant rights." n126 UCIOA permits the declarant to retain, in the declaration, special declarant rights, including among other things the right to appoint members of the board until 75% of the units are sold, and to complete the development without interference. These special rights attach regardless of whether the board is controlled by the owners or by the declarant. n127 Special declarant rights are property rights, transferable by the declarant. n128
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n126. Unif. Common Interest Ownership Act 1-103(29) (1994), 7 pt. 1 U.L.A. 481-82 (1997),
n127. Section 1-103 of UCIOA states:
"Special declarant rights" means rights reserved for the benefit of a declarant to (i)complete improvements indicated on plats and plans filed with the declaration (section 2-109) or, in a cooperative, to complete improvements described in the public offering statement pursuant to section 4-103(a)(2); (ii)exercise any development right (section 2-110); (iii)maintain sales offices, management offices, signs advertising the common interest community, and models (section 2-115); (iv)use easements through the common elements for the purpose of making improvements within the common interest community or within real estate which may be added to the common interest community (section 2-116); (v)make the common interest community subject to a master association (section 2-120); (vi) merge or consolidate a common interest community with another common interest community of the same form of ownership (section 2-121); or (vii) appoint or remove any officer of the association or any master association or any executive board member during any period of declarant control (section 3-103(d)).
Id.
n128. Unif. Common Interest Ownership Act 3-104 (1994), 7 pt. 1 U.L.A. 578-80 (1997).
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[*1030] Consequently, even though UCIOA does not permit weighted voting, it provides at least the same protection for declarants as does California law. In addition, UCIOA probably provides more flexibility. Under both Acts, the developer can retain control of the board until 75% of the units are sold. n129 UCIOA makes clear, however, that the declarant can retain the right to complete the development, in accordance with the governing documents, without interference from the owners, even if the declarant does not control the board. n130 Thus, under UCIOA, the declarant can transfer control of the association, thereby limiting the developer's future liability for breach of fiduciary duty, and still complete the development without interference. In addition, the declarant can transfer all, or part, of the "special declarant rights." n131
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n129. Id. 3-103(d), at 576; Cal. Code Regs. tit. 10 2792.32(f) (1997).
n130. Unif. Common Interest Ownership Act 3-103(d) (1994), 7 pt. 1 U.L.A. 576 (1997).
n131. See discussion infra Part III.D.1 for an additional discussion of the transfer of declarant rights.
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Likewise, under UCIOA, the declaration must identify limited common elements (exclusive use common area) and the units (separate interests) that have the exclusive use of these limited common elements. n132 Once identified in the declaration, they cannot be reallocated without the consent of the affected owners. n133 While there is no provision in Davis-Stirling addressing the reallocation of assigned exclusive use common elements, California practitioners generally follow the procedures outlined in UCIOA by assigning exclusive use area to specific separate interests in the declaration.
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n132. Unif. Common Interest Ownership Act 2-108 (1994), 7 pt. 1 U.L.A. 532 (1997).
n133. Id. 2-108(a), at 532.
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Occasionally, however, they do not. For example, on occasion, declarants create "floating" parking spots which they assign at the time of sale. Because this flexibility may be necessary in some developments, the legislature should not prevent the declarant from creating unassigned, exclusive use common areas, provided the declarant assigns these areas in accordance with the governing documents.
While the acts are similar in what they require in the declaration, there are some significant differences. As discussed above, UCIOA provides more protection for owners of leasehold common interest communities, does not permit de- [*1031] clarant weighted voting (but does provide declarant protection), and provides that limited common elements (exclusive use common areas) can not be reallocated without the consent of the affected owners. n134 The legislature should consider adopting these provisions of UCIOA for the following reasons: (1)the protections afforded declarants are as great using the concept of special declarant rights, as they are with weighted voting; (2)special declarant rights permit more flexibility; (3)the owners of leasehold common interest developments should be given protection; (4)it should be clear in Davis-Stirling, that once exclusive use common areas are assigned to particular separate interests, they cannot be taken away without the affected owner's consent.
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n134. Id.
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Another difference between the two acts is that UCIOA requires plats and plans to be part of the declaration of condominiums and planned communities and describes what must be included in those documents. n135 While plats and plans are not addressed in Davis-Stirling, they are covered by the California Subdivision Map Act and local ordinances pertaining to the parcel maps and subdivision maps. n136 Because these issues are adequately addressed by other statutes and established case law, it is unnecessary for California to adopt these provisions of UCIOA. n137
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n135. Unif. Common Interest Ownership Act 2-107 (1994), 7 U.L.A. 533-35 (1997). UCIOA section 2-109 provides a detailed list of the matters that must be addressed in the plats and plans. Id. 2-109, at 533-35.
n136. Cal. Gov't Code 66410 to 66413.7, 66425 to 66500 (West 1997).
n137. While other statutes deal with mapping of common interest developments and building plans, they do not require the declarant to turn over those maps and plans to the association. But see Cal. Code Regs. tit. 10 2792.23a(1) (1997). Because the association must maintain the common area, a statute should require the declarant to give these maps and plans to the association.
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2.
Bylaws
UCIOA sets forth six required provisions for bylaws for community associations: (1)the number, qualifications, terms of office and duties of members of the board; (2)the election of officers by the board; (3)the qualifications, powers and duties of the board, and their terms of office; (4)the powers that can be delegated by the board; (5)who may execute amendments; and (6)a method for amending the bylaws. n138 [*1032] Other provisions can be added to bylaws unless the declaration otherwise provides. n139
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n138. Unif. Common Interest Ownership Act 3-106 (1994), 7 pt. 1 U.L.A. 584-85 (1997).
n139. Id. 3-106(b), at 585.
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Davis-Stirling contains no similar provision. This is primarily because the task force that assisted the Legislature in drafting Davis-Stirling concluded that California's Nonprofit Mutual Benefit Corporation Law adequately addressed the internal governance of community associations and the content of bylaws. n140 Further, even though some community associations are not incorporated, section 1363 of the California Civil Code states that unless the governing documents provide otherwise, an unincorporated association "may exercise the powers granted to a nonprofit mutual benefit corporation, as enumerated in section 7140 of the California Corporations Code." n141 It is unnecessary for Davis-Stirling to duplicate provisions of the Nonprofit Corporations Code. Thus, it is, unnecessary for the legislature to adopt these provisions of UCIOA.
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n140. Cal. Corp. Code 7150-7153 (West 1990 & Supp. 1998).
n141. Cal. Civ. Code 1363(c) (West 1982 & Supp. 1998).
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3.
Amendment of Governing Documents
There are substantial differences between the provisions of UCIOA and Davis-Stirling regarding amendment of governing documents. Under UCIOA, with certain exceptions, a residential common interest community may only amend the declaration by a 67% vote. n142 The exceptions, discussed in greater depth in subsequent sections of this article, include the following:
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n142. Unif. Common Interest Ownership Act 2-117(a) (1994), 7 pt. 1 U.L.A. 546 (1997).
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(1) Reallocation of interests happens automatically in the case of eminent domain. n143
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n143. Id.
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(2) Certain unit boundary changes can occur upon the consent of the affected owners. n144
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n144. Id.
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(3) Declarant rights can not be increased, and the owner's percentage interest in the community can not be changed, without unanimous consent. n145
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n145. Id. 2-117(d), at 546.
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[*1033] (4) The time within which special declarant rights can be exercised may be extended by 80% of the votes including 80% of the votes held by owners other than the declarant. n146
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n146. Id. 2-117(g), at 547.
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(5) Amendments that prohibit or materially restrict the permitted uses or behavior in the unit, or that restrict the number of people who may occupy the unit, require 80% approval. n147
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n147. Id. 2-117(f).
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(6) Communities that are not residential may require a lower percentage to amend the declaration. n148
Amendments must be recorded and are effective only upon recordation. n149 Actions challenging the validity of recorded amendments must be brought within one year of the recordation. n150
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n148. Unif. Common Interest Ownership Act 2-117(a) (1994), 7 pt. 1 U.L.A. 546 (1997).
n149. Id. 2-117(c), at 546.
n150. Id. 2-117(b), at 546.
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California law is more flexible in permitting amendments to the declaration in many respects, but less flexible in others. As mentioned above, in order to sell a unit or lot in a residential common interest development of five or more units, a developer must obtain permission from the DRE which reviews the governing documents. n151 The DRE Regulations allow the declaration to contain a provision permitting the declaration to be amended by a bare majority of the votes (including at least a bare majority of the votes not owned by the declarant). n152 Thus, California law permits owners holding a bare majority of the votes to amend the declaration, whereas UCIOA requires 67% of the voting power to amend in most cases. n153
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n151. Cal. Bus & Prof. Code 11000-11200 (West 1987 & Supp. 1997).
n152. See Cal. Code Regs. tit. 10 2792.24 (1997).
n153. Cal. Bus. & Prof. Code 11018.7 (West 1987 & Supp. 1998); Cal. Code Regs. tit. 10, 2793 (1997); Unif. Common Interest Ownership Act 2-117 (1994), 7 pt. 1 U.L.A. 546 (1997). While the declarant is in control of the development all material amendments to the declaration must be approved by the DRE. Cal. Bus. & Prof. Code 11018.7 (West 1987 & Supp. 1998).
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The provisions in Davis-Stirling dealing with amendment also anticipate that, in many cases, owners holding fewer than 67% of the votes may amend the declaration. First, section 1356 of the California Civil Code provides that [*1034] when a declaration requires more than a bare majority vote to amend the declaration, the owners may petition the court to reduce the percentage required in the declaration for approving an amendment. n154 In order to receive a court ordered amendment, the association, or owner requesting the amendment must do the following: satisfy specified procedural requirements; demonstrate that at least a bare majority approved the amendment; and show that the amendment is reasonable. n155 If the amendment impairs a security interest, the court cannot order such amendment without the approval of the percentage of the mortgages and beneficiaries specified in the declaration, if one is expressed. n156 If the declarant's rights are affected, the declarant must also consent, making this provision similar to that in UCIOA. n157
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n154. Cal. Civ. Code 1356 (West 1982 & Supp. 1998).
n155. Id.
n156. It is noteworthy that the court can approve the amendment without approval of the lienholders unless the amendment would impair the security interest. Cal. Civ. Code 1356(e)(3) (West 1982 & Supp. 1998).
n157. Unif. Common Interest Ownership Act 2-117(g) (1994), 7 pt. 1 U.L.A. 547 (1997).
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A second provision, pertaining to amendments applies to older projects which do not contain any provisions regarding amendment of the governing documents. If a declaration does not contain amendment provisions, then the declaration can be amended if the following are satisfied: (1) specified procedural requirements are met; (2) more than a bare majority approve the amendment; and (3) the amendment has been recorded in every county in which the common interest development is located. n158
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n158. Cal. Civ. Code 1355(b) (West 1982 & Supp. 1998).
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Davis-Stirling also simplifies the amendment process in two different respects. First, it creates a simplified procedure for amending the governing documents to delete provisions pertaining to declarant rights after construction is completed. n159 Second, it simplifies the procedures for determining when an amendment is effective. n160 Finally, Davis-Stirling permits declarations that terminate on a specific [*1035] date, and do not contain an extension provision to be extended if the requirements specified in the statute are satisfied. n161
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n159. Cal. Civ. Code 1355.5.
n160. Id. 1355(a). The section provides that an amendment is effective after the requisite approval is obtained, facts to that effect have been certified in writing and executed and acknowledged by a specified officer, and the writing has been recorded in each county in which the development is located. Id. This provision simplifies the process by, among other things, overriding declarations that require all owners and lienholders to sign the amendment. Id.
n161. Id. 1357.
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Thus, California law, in some respects, is much more receptive to the concept of amendment, than is UCIOA. California permits declarations to contain provisions requiring only a bare majority to amend the declaration, rather than the 67% required by UCIOA. n162 It also provides statutory relief for declarations that contain requirements for greater than a bare majority vote or no amendment provision. n163 Further, there are no special provisions requiring an 80% vote for amendments that prohibit or materially restrict the use or behavior in a unit, as there are in UCIOA. n164
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n162. Unif. Common Interest Ownership Act 2-117 (1994), 7 pt. 1 U.L.A. 546 (1997).
n163. Cal. Civ. Code 1356(a) (West 1982 & Supp. 1998).
n164. Id. 2-117(f), at 547.
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On the other hand, Davis-Stirling does not have provisions pertaining to amendment by eminent domain. It is more difficult to alter boundaries by amendment, under Davis-Stirling, than it is under UCIOA. Moreover, Davis-Stirling does not provide for termination of the community upon 80% approval, as does UCIOA. n165 All of these aspects will be discussed below in greater detail. Thus, in some respects, UCIOA's amendment provisions are more lenient than those of Davis-Stirling.
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n165. Unif. Common Interest Ownership Act 2-118 (1994), 7 pt. 1 U.L.A. 548-62 (1997).
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C.
Lender's Rights
Under UCIOA, the declaration may require lender approval for specifications by the association, such as a sale of part of the common elements (area). n166 The declaration, however, cannot provide for lender approval which affects the general administrative affairs of the association, prevents the association or its board from commencing, intervening or settling litigation, or which prevents insurance trustees or the association from receiving and disbursing insurance proceeds. n167
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n166. Unif. Common Interest Ownership Act 2-119 (1994), 7 pt. 1 U.L.A. 562-63 (1997).
n167. Id.; see also id. 3-113, at 594-96.
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[*1036] The only statutory provision in Davis-Stirling addressing lenders' rights in connection with amending the declaration is section 1356 of California Civil Code. n168 Section 1356 requires lender approval of court ordered amendments, when the amendment would impair a security interest. n169 Although this is the only statutory reference to lender's rights in Davis-Stirling, it is common for declarations in California to address lenders' rights and give them protections required by the secondary mortgage market.
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n168. Cal. Civ. Code 1356 (West 1982 & Supp. 1998).
n169. Id.
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D.
Declarant Rights and Transfer of Declarant Rights
1.
Declarant Rights
UCIOA gives the declarant several rights. n170 For example, UCIOA permits a declarant of a planned community to amend the declaration to include additional real estate. The declarant may do so provided the following requirements are satisfied: the right is reserved in the declaration; the added property does not exceed 10% of the land described in the original declaration; the total number of units does not exceed the number stated in the original declaration; and, the declarant adds the real estate within the time specified in the original declaration. n171 The purpose of the right is to permit developers to subsequently incorporate small parcels of real estate into a "new town" planned community when such parcels could not have been acquired at the inception of the development. n172
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n170. Unif. Common Interest Ownership Act1-103(14), 7 U.L.A. 480 (1997). Development rights (1994) as "any right or combination of rights reserved by a declarant in the declaration to (i) add real estate to a common interest community; (ii) create units, common elements, or limited common elements within a common interest community; (iii) subdivide units or convert units into common elements; or (iv) withdraw real estate from a common interest community." Id.
n171. Id.2-122, at 568-69.
n172. Id.2-122, at 569.
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Davis-Stirling does not specifically give declarants the right to alter the development. Rights similar to those in UCIOA, however, are addressed in the DRE Regulations. n173 Under DRE Regulations, if a declarant is planning on developing a large project in phases, the following criteria must be [*1037] satisfied: (1) the right to annex property to the development must be reserved in the declaration; (2) it must be in accordance with a plan of phased development which is submitted with the first phase of the development; and (3) it must be approved by the DRE. n174 Because the DRE Regulations do not contain limitations on the percentage of land, or number of units that can be annexed, they are considerably less restrictive than the annexation provisions of UCIOA applicable to planned communities.
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n173. Cal. Code Regs. tit. 10, 2792.27 (1997).
n174. Id. Until recently, the developer' right to annex property pursuant to an approved plan of annexation, and without the necessity of owner approval, was limited in time. However, as of November 13, 1996 the time limit was removed so long as the annexation remains pursuant to an approved plan. Id.
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Under UCIOA, property can be annexed even if it does not meet the above criteria. In that case, however, the declaration must require approval of two thirds of the voting power of the association (not including the votes of the declarant) before such property can be annexed. This provision assures that proposals for unplanned annexations will be presented to the members for consideration, although the super-majority vote required may be difficult to achieve in a large scale development. Other rights that UCIOA gives the declarant include the right to: maintain sales officers; maintain models in the development; and maintain signs in the development, provided the declarant reserves these rights in the declaration. n175
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n175. Unif. Common Interest Ownership Act 2-115 (1994), 7 pt. 1 U.L.A. 544 (1997).
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Although Davis-Stirling does not specifically give declarants similar rights, it is common for declarants to reserve these rights in the declaration. Further, section 1355.5 of the California Civil Code deals with amending documents to eliminate provisions designed to "facilitate the developer in the construction or marketing of the development." n176 Thus, Davis-Stirling indirectly assumes such declarant rights exist. These rights, however, should be created by statute, rather than by regulation or implication. One difference between UCIOA and Davis-Stirling is that UCIOA provides that if the declarant reserves such rights, the declaration must provide detail as to the size and location of the facilities in order to provide notice to owners of the reserved rights. In California, the sales and management offices are generally [*1038] built first. If, however, they are not, owners have a right to know if they are buying next to a sales office. Therefore, the legislature should consider clarifying the declarant rights in Davis-Stirling by adopting provisions similar to those in UCIOA.
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n176. Cal. Civ. Code 1355.5 (West 1982 & Supp. 1998).
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UCIOA also grants the declarant an easement through the common areas, to the extent needed to perform the declarant's obligations or exercise the declarant's rights. n177 The declarant, however, is responsible for any damage caused to the common area, and is obligated to make necessary repairs. n178 Davis-Stirling does not specifically grant the declarant an easement through the common areas to exercise declarant rights, but such right is commonly contained in declarations in California.
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n177. Id. 2-116(a), at 545.
n178. Id. 4-119(b), at 639.
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Under California general tort law, if the declarant damages the common area when using the easement, the declarant will generally be liable for the damage. Rarely, however, will general tort law create an obligation to repair. Thus, it would be clearer if these rights were declared by statute.
2.
Transfer of Declarant Rights and Special Declarant Rights n179
UCIOA sets forth rules whereby a declarant can transfer rights to others. Section 3-104 "strikes a balance between the obvious need to protect the interests of unit owners and the equally important need to protect innocent successors to a declarant's rights...." n180
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n179. See also supra Part III.B.1 discussing special declarant rights.
n180. Unif. Common Interest Ownership Act 3-104 cmt. 2 (1994), 7 pt. 1 U.L.A. 580 (1997).
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Any transfer of special declarant rights must occur by an instrument recorded in each county where the development is located and be signed by the transferee of those rights. Once transferred, the transferor and transferee are liable only for their own actions, unless the successor is an affiliate of the transferor-declarant. n181 In other words, assuming the transferee is not an affiliate, once the transfer is made, the transferor is liable only for obligations, liabilities and warranties pertaining to the rights for periods prior to [*1039] the transfer. n182 Similarly, the successor is not liable for the previous declarant's misrepresentations, warranty obligations, breach of fiduciary duty or acts or omissions after transfer. n183
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n181. Id. 3-104(b)(2), at 578.
n182. Id. 3-104 cmt. 4, at 581.
n183. Id. 3-104 cmt. 5, at 582.
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In California it is unlikely that a declarant who has no affiliation with a successor declarant for all or a portion of the same development will be liable for misrepresentations, warranty obligations or acts or omissions of the successor. Similarly a successor declarant who has no affiliation with the declarant is unlikely to be liable for the predecessor's breach of fiduciary duty or express warranties. n184 Whether a successor declarant is liable for the acts of a predecessor is an issue that most often arises in California in the context of construction defect litigation. n185 This will be discussed below. n186
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n184. See California Construction Contracts and Disputes (Continuing Educ. of the Bar, eds., 2d ed. 1990).
n185. Id.
n186. See infra Part IV.
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If a declarant's interests in the common interest community (development) are foreclosed upon, UCIOA provides that the person acquiring the interests in foreclosure may, upon request, succeed to all special declarant rights pertaining to the property. Such rights include the right to maintain models, sales offices and signs. n187 If the entire interest of a declarant is foreclosed upon, or sold in bankruptcy, the declarant ceases to have any further special declarant rights and the period of declarant control terminates, unless the judgment or instrument conveying title provides for the transfer of the special declarant rights. n188
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n187. Unif. Common Interest Ownership Act 3-105(c) (1994), 7 pt. 1 U.L.A. 544-45 (1997).
n188. Id. 3-105(d), at 445.
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There is no similar law in California specifically dealing with declarant rights in the event of foreclosure. Davis-Stirling should clarify those rights by adopting this provision of UCIOA.
[*1040]
E.
Governmental Regulation of Common Interest Developments
1.
Regulation of Public Report and State Administration and Regulation
Article 4 of UCIOA deals predominately with the protection of purchasers. Article 5, which is considered an optional article, deals with the administration, and regulation, of common interest communities. n189 While many of these provisions are not included in Davis-Stirling, most are included in other areas of California law. It is extremely unlikely that the legislature would consider replacing the existing structure with the public reporting provisions in Article 4 of UCIOA or the administrative provisions in Article 5. Because the goal of UCIOA and California law is to protect purchasers, little is lost by failing to adopt these Articles. Therefore, with the exception of one provision appearing in Article 4 dealing with developer liability, these articles will not be discussed.
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n189. See infra Part V.
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2.
Statute and Local Ordinance Treating Like Projects Similarly
Other provisions relating to governmental regulation include UCIOA section 1-106(a), which provides: "A building code may not impose any requirement upon any structure in a common interest community which it would not impose upon a physically identical development under a different form of ownership." n190 For example, while a building code can impose a minimum fire wall rating in a high rise building, it cannot impose one standard for apartment buildings and a different standard for an identical building that is a common interest community.
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n190. Unif. Common Interest Ownership Act 1-106(a) (1994), 7 pt. 1 U.L.A. 495.
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Further, a state or local government may not impose a requirement on condominiums and cooperatives that it would not impose on a physically identical building. UCIOA, however, permits local governments to regulate planned communities differently from cooperatives and condominiums. n191 These developments are treated differently because histori- [*1041] cally, most states have treated planned developments differently. n192
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n191. Id. 1-106 cmt. 3, at 496.
n192. Telephone interview with Carl H. Lisman, Chair of the Standby Committee, Uniform Common Interest Ownership Act (1994), which prepared UCIOA for the National Conference of Commissioners on Uniform State Laws (Sept. 21, 1997).
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California law is similar to UCIOA, but not identical. Section 1372 of the California Civil Code limits the extent to which local governments may discriminate against a development solely on the basis of its form of ownership. n193 The statute provides that local zoning ordinances are presumed to treat like structures in like manner unless the zoning ordinance clearly expresses a contrary intent. n194 Thus, under California law, while there is a presumption that zoning ordinances do not impose differing requirements on identical structures based on form of ownership, if a local government chooses to do so it may.
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n193. Cal. Civ. Code 1372 (West 1982 & Supp. 1998).
n194. Id.
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If governments were prohibited from discriminating in this manner, it would be unnecessary for the developer to elect to treat a development with common areas owned in common, as either a planned development or condominium, based on whether the government places heavier burdens on one of these forms of ownership - a rather ridiculous situation. Local governments should not discriminate solely on the basis of form of ownership. Therefore, it makes sense to amend section 1372 of the California Civil Code to bring it in conformance with the UCIOA provision, with one exception.
As mentioned, UCIOA permits local governments to impose different standards on planned developments. n195 This provision appears to assume that condominiums are attached housing, and planned developments are detached housing. n196 This is not necessarily the case in California. Therefore, all similar structures should be treated similarly. n197
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n195. See infra note 191.
n196. Compare Unif. Common Interest Ownership Act 1-106, cmt. 2 (1994), 7 pt. 1 U.L.A. 495-96 (1997), with id. 1-106 cmt. 3, at 496.
n197. Adopting this provision would not preclude local governments from imposing stricter standards on planned developments that are detached housing than on planned developments that are attached housing. In this case the difference is based on the physical characteristics of the project and not the form of ownership.
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[*1042]
3.
Eminent Domain
Finally, UCIOA addresses condemnation. n198 The intent of UCIOA is not to alter the law of eminent domain, but to supplement it. n199 The goal is to state specifically what happens in the event a governmental agency condemns an entire separate interest or common area, or any portion of a separate interest or common area, through eminent domain. n200 If eminent domain leaves the owner with no practical use of his or her property, then the condemning agency must compensate the owner for both the separate interest and the interest in common area, even if no common area is taken. n201 If there is a remnant of land, after condemnation, it becomes part of the common area. n202
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n198. Unif. Common Interest Ownership Act 1-107 (1994), 7 pt. 1 U.L.A. 497 (1997).
n199. Id. cmt. 1 at 498.
n200. Id.
n201. Id. 1-107(b), at 497.
n202. .Id. 1-107(a), at 497.
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UCIOA also provides a default position when part of a unit or lot is taken and when part of the common area is taken. n203 It permits both the decree and declaration to alter some of the default positions in order to guarantee a just result. n204
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n203. Id. 1-107(b) & (c), at 497-98.
n204. Id. 1-107(a), at 497.
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If the California legislature adopted this section, it would be supplementing, rather than changing the state's law of eminent domain, which is what the drafters of UCIOA intended. The legislature would be filling a gap in the law regarding common interest developments by clearly stating what happens when a governmental agency condemns a common interest development, or portions of it.
IV.
Boundaries: Creation, Alterartion and Termination
A.
Creation
As mentioned above, both UCIOA and Davis-Stirling require the declaration to contain a legal description of the common interest community. n205 On occasion, however, a declaration does not state precisely which area is owned [*1043] separately by the owner, which are common elements (areas) and which are limited common elements (exclusive use common areas). While there are minor differences in the two statutes, both have the same purpose - to create certainty when the declaration fails to do so. It is useful to know the precise boundaries for a variety of reasons, such as determining maintenance and insurance responsibilities. A default position is particularly important in attached housing.
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n205. See infra Part III.B.
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Consequently, when the declaration is silent, UCIOA n206 and Davis-Stirling n207 provide that, unless the declaration provides otherwise, when walls, floors and ceilings are designated as boundaries, the interior surfaces are part of the unit; any other portion are part of the common area. Although there are minor differences, both acts provide a default position for determining when fixtures and bearing walls are exclusive use common area and when they are common area. n208
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n206. Id. 2-102(1), at 519.
n207. Cal. Civ. Code 1351(l) (West 1982 & Supp. 1998).
n208. See id. 1351(I),(l); Unif. Common Interest Ownership Act 2-102(1)-(4) (1994), 7 pt. 1 U.L.A. 519 (1997).
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Even if the declaration is clear, a problem in the legal description may arise if the physical boundaries of the buildings in the legal description do not precisely correspond to the actual physical boundaries of the buildings. Thus, section 2-114 of UCIOA provides that, where existing physical boundaries of a unit (separate interest) deviate from the legal description, the physical boundaries control. n209
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n209. Id. 2-114, at 543.
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A similar provision exists in Davis-Stirling. n210 This section, however, applies only to condominiums. n211 The section was taken from the Condominium Act existing at the time Davis-Stirling was being drafted. n212 Because the same problems of vertical and lateral movement and minor deviations from the description in the declaration also can occur in attached planned developments and cooperatives, as well as condominiums, Davis-Stirling should be amended to apply to all forms of common interest developments.
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n210. Cal. Civ. Code 1371 (West 1982 & Supp. 1998).
n211. Id.
n212. Former Cal. Civ. Code 1356 (West 1982) (repealed by stats. 1985, c.874, 13).
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[*1044]
B.
Alteration of Boundaries
This portion of the article deals with the following: alteration of walls within a separate interest; alteration of boundaries between separate interests; alteration of the boundaries of common areas and exclusive use common areas; and termination of the common interest development. Some declarations in California provide for any or all of the above. It is unclear, however, the extent to which some of these provisions, which ultimately change the extent of the owner's property interest without the owner's consent, may violate California law.
When a person buys a unit or lot in a common interest development, he or she receives a separate interest and either a tenancy-in-common interest in the common area or membership in the association that owns the common area. If the portions of the common area are sold or transferred to a particular owner, or if the development is terminated, the ownership interest of the individual is reduced. This presents the legal question whether these changes may occur without the owner's consent.
In Posey v. Leavitt, n213 a condominium owner brought an action alleging, among other things, that the adjoining unit owner did not have a right to build a deck that encroached upon the common area without the consent of all the owners. The court concluded that the plaintiff was correct. n214
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n213. 280 Cal. Rptr. 568 (Ct. App. 1991).
n214. Id. at 574.
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In Posey, the declaration stated that the association had the power to "sell, lease, transfer, dedicate for public use or otherwise dispose of real or personal property in connection with the affairs of the Association." n215 The defendants argued that this power implied the power to grant an easement for the encroachment. n216 The declaration also provided that the owners had an easement over the common area, and that the percentage of ownership of the common area could not be changed without the consent of all the owners. n217
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n215. Id. at 573.
n216. Id. at 574.
n217. Id.
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The court concluded that because the encroachment impaired the easement rights of the owners, the declaration req- [*1045] uired unanimous consent. n218 Further, although the association owned the common area in question, this did not alter the fact that the plaintiff had a property interest in the common area, an easement. n219 This property interest could not be impaired without the owner's consent. n220
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n218. Id.
n219. Posey v. Leavitt, 280 Cal. Rptr. 568, 574 (Ct. App. 1991).
n220. Id.
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Some argue that this holding should be confined to its facts; that is, unanimous consent is only needed to change an owner's percentage interest when the declaration requires it. They further argue that when the declaration specifically authorizes the association to dispose of the common area without unanimous consent, such action should be permitted.
Others argue that the issue of changing an owner's interest without consent is unresolved. They point to the fact that in other jurisdictions where the issue has been adjudicated, courts have concluded that owner's property interest can not be changed without his or her consent. n221
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n221. See Grimes v. Moreland, 322 N.E.2d 699 (Ohio Misc. 1974); Mackeever v Lyle, 609 P.2d 1084 (Ariz. App. 1980); Penny v. Ass'n of Apartment Owners of Hale Kaanapali, 776 P.2d 393 (Haw. 1989); see also Schaumburg State Back v Bank of Wheaton, 555 N.E.2d 48 (Ill. Ct. App. 1990) (describing circumstances under which an agreement did not reduce the percentage interest in the common area, and, thus, did not require unanimous approval); Jarvis, II v. Stage Neck Owners Ass'n, 464 A.2d 952 (Me. 1983).
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Due to this uncertainty, the legislature should enact a statute that clarifies what conditions must exist for fewer than 100% of the owners to change an owner's interest in the property. UCIOA provides different statutory solutions depending on the situation. n222 Some of these solutions require an 80% vote. n223 When considering the various statutory solutions, discussed below, n224 the reader should consider what the appropriate balance is between permitting flexibility and ensuring that the owner's property interest will not be significantly changed without his or her consent.
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n222. Unif. Common Interest Ownership Act 2-1111 (1994), 7 pt. 1 U.L.A. 497 (1997).
n223. Id. 2-218, at 548-62.
n224. See discussion infra Part IV.B.1.
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[*1046]
1.
Units (Separate Interests)
a.
Owner Altering Unit (Separate Interest)
UCIOA provides if the alteration of a unit (separate interest) does not impair the structural integrity or mechanical systems of the affected unit (separate interest), or lessen the support of any portion of the structure in which the unit (separate interest) is contained, the owner has the right to undertake an improvement or alteration, unless the declaration provides otherwise. n225 If the alteration will alter the appearance of the common elements (areas), or the exterior appearance of a unit (separate interest), or other portion of the common interest community (development), however, the project may only be undertaken with the permission of the association. n226
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n225. Unif. Common Interest Ownership Act 2-111 (1994), 7 pt. 1 U.L.A. 497 (1997).
n226. Id.
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Section 1360(a) of Davis-Stirling gives the owners similar rights to those granted by UCIOA. n227 In addition, section 1360(b) provides special rules for handicap access modification. n228 These have been pre-empted, however, by the California Fair Employment and Housing Act n229 and the Federal Fair Housing Act. n230
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n227. Cal. Civ. Code 1360(b) (West 1982 & Supp. 1998); Unif. Common Interest Ownership Act 2-111 (1994), 7 pt. 1 U.L.A. 497 (1997).
n228. Cal. Civ. Code 1360(b) (West 1982 & Supp. 1998).
n229. Cal. Gov't Code 12900 to 12996 (West 1992 & Supp. 1998).
n230. 42 U.S.C. 3601-3631 (1994 & Supp. 1998).
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b.
Owner Combining Units (Separate Interests)
Subject to the provisions of the declaration, UCIOA permits an owner of two adjoining units (separate interests) to remove or alter any intervening partition, even if that partition is a common element (area), in order to join the two units (separate interests). n231 UCIOA provides, however, that the removal of partitions does not alter the boundaries of the units. n232 Comment 4 to section 2-113 explains that while the adjoining units (separate interests) may be used as one, they [*1047] do not become a single unit (separate interest). n233 This becomes important when considering issues such as the allocation of assessments and votes.
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n231. Unif. Common Interest Ownership Act 2-111(3) (1994), 7 pt. 1 U.L.A. 539-40 (1997).
n232. See id.
n233. Id. 2-113 cmt. 4, at 540.
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There is no corresponding provision in Davis-Stirling. The legislature should consider including this type of flexibility. Again, the ease of combining units may be particularly important in commercial and industrial developments, but it, also, may be beneficial in some residential developments. The declaration can always preclude such alterations in developments where alterations would be unreasonable.
c.
Owner Subdividing a Unit (Separate Interest)
Under UCIOA, owners can subdivide their units, provided the subdivision is permitted in, and consistent with, the declaration. n234 UCIOA contemplates that the owner desiring to subdivide his or her unit will apply to the association, which is then obligated to prepare an amendment to the declaration. n235 The amendment must be prepared by the association, signed by the owner, assigned a new identifying number for each of the newly created units (separate interests) and have the voting and assessment rights "in any reasonable manner prescribed by the owner." n236
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n234. Id. 2-113, at 539-40.
n235. Id.
n236. Id. 2-113(b).
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No similar provision exists in California law, other than the provisions of the Subdivision Map Act and local ordinances relating to boundary line adjustments and amendments to previously filed final subdivision maps. n237 It is common for the governing documents of residential common interest developments to prohibit the subdivision of separate interests. Subdivision may be undesirable because it could have an adverse impact on the association's assessment base, the market value of the lots, parking congestion within the development or other aesthetic considerations of the neighborhood. UCIOA does not provide that the declaration must permit subdivision of units; it only provides that the declaration may do so. n238
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n237. See Cal. Gov't Code 66469 to 66472.1 (West 1997).
n238. Unif. Common Interest Ownership Act 2-113 cmt. 4 (1994), 7 pt. 1 U.L.A. 543 (1997).
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The right to subdivide the separate interest is particu- [*1048] larly important in commercial and industrial developments, but also may be advantageous in some residential planned developments. Therefore, the legislature should permit this flexibility where the declarant or owners deem it advisable.
d.
Owners Changing Boundaries Between Units (Separate Interests)
Unless prohibited by the declaration or local laws, UCIOA also permits adjoining unit owners to alter the boundaries between their units by applying to the association for an amendment to declaration. n239 In connection with the reallocation of boundaries, the owners may propose to the board of directors that the voting rights and assessments be altered; this would be appropriate where voting rights or assessments are based on square footage. Once a reallocation is proposed, the board has thirty days in which to determine whether the reallocations are reasonable. n240
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n239. Id. 2-112, at 540-42.
n240. Id. 2-112 cmt. 2, at 541.
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If the reallocations are approved, the association is obligated to prepare an amendment to the declaration that identifies the units involved and sets forth the revised reallocations. n241 The amendment must be executed by the affected unit owners, contain records of conveyance between them, and be recorded. n242 The association also must prepare and record any other necessary documents which describe the altered boundaries of the affected unit, their dimensions, and their identifying numbers. n243 Again, Davis-Stirling does not contain similar provisions. The California legislature should consider permitting declarants and owners this flexibility.
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n241. Id. 2-112(a), at 540.
n242. Id.
n243. Id.
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2.
Limited Common Elements (Exclusive Use Common Areas)
UCIOA also permits the owners, other than the declarant, to alter limited common elements (exclusive use common area) under certain circumstances. n244 UCIOA requires the declaration to specify to which unit (separate interest) or units, each limited common element (exclusive use area) is [*1049] allocated. n245 Once that description is presented in the declaration, it cannot be altered without the consent of the owners whose units are affected. n246 If the affected owners agree, UCIOA permits the affected owners to reallocate their limited common elements and execute an amendment to the declaration. n247 They do not need the permission of the other owners to exercise this right. n248 The right to reallocate limited common elements (exclusive use common areas) may be restricted or denied in the declaration. n249
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n244. Id.
n245. Unif. Common Interest Ownership Act 2-108(a) (1994), 7 pt. 1 U.L.A. 532 (1997).
n246. Id.
n247. Id. 2-108(b), at 532.
n248. Id.
n249. Id.
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No similar provision exists in California law. There is no reason, however, to deny a declarant or the owners the right to build this flexibility into the development. Therefore, the legislature should consider adopting this provision of UCIOA.
UCIOA also permits portions of the common elements to be reallocated as limited common elements by amendment. This may only be accomplished pursuant to provisions in the declaration. n250 There is no California statutory authority for changing common area into exclusive use common area and it may be desirable to permit this flexibility. For example, once a new garden wall or fence is extended into the common area, it is difficult to get a court to order removal. The association should have the flexibility to grant easements for such encroachments, and perhaps to require the owner who encroached on the common area to maintain the encroachment and indemnify the association, without needing unanimous consent.
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n250. Id. 2-108(c), at 532.
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3.
Common Elements (Common Area)
Finally, assuming there are no prohibitions in the declaration or local ordinance, UCIOA gives the owners the right to alter their units (separate interests) in ways which appropriate portions of the common area under certain circumstances. n251 To effectuate the appropriation of common elements (areas), the owner of the unit must apply to the [*1050] association for an appropriate amendment to the declaration. The amendment must be approved by at least 67% of the votes in the association, excluding the votes of the declarant. n252
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n251. Unif. Common Interest Ownership Act 2-112 (1994), 7 pt. 1 U.L.A. 540-41 (1997).
n252. Id. 2-112(b), at 541.
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A proposed amendment must describe any fees or charges payable by the owner in connection with the proposed boundary relocation. n253 Those fees are deemed to be assets of the association. n254 If the amendment is approved, it must be executed both by the unit owner whose boundary is being relocated, and by the association. n255
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n253. Id.
n254. Id.
n255. Id.
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No similar provision exists in California law. If this provision of UCIOA were adopted in California, the owners would have to consider the potential harm the development might suffer to the aesthetics of the project through piece-meal appropriations of common area. In some developments, however, the owners may prefer not to be assessed for common area that they do not use, and, thus, prefer to reallocate the common area and its maintenance responsibility to a single owner. For example, when garage doors, sliding doors, or windows are common area, the owners may decide they would prefer the individual owner, rather than the association, be responsible for maintaining the fixtures. Owners may, therefore, choose to make the fixtures exclusive use common area.
Once again, the declaration may prohibit such a practice in developments where it would be inadvisable. There is no reason, however, to assume this practice is undesirable in all common interest developments. Therefore, the legislature should consider adopting this provision and the flexibility it permits.
4.
Termination
a.
By Agreement of the Owners
UCIOA addresses an important issue that is often not well addressed in California declarations: the circumstances under which a common interest community can be termi- [*1051] nated by the owners. n256 This issue was critical following the Los Angeles earthquake of 1994. Major portions of some common interest developments were destroyed and no termination provisions existed in the governing documents.
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n256. Id. 2-118, at 548-51.
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Under UCIOA, the decision to terminate a common interest community (development) must be evidenced by an agreement signed by owners holding at least 80% of the voting power of the association (the declaration may provide for a higher percentage). n257 UCIOA also contemplates that lenders may require a greater than 80% vote to terminate a common interest development. n258
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n257. Unif. Common Interest Ownership Act 2-118 (1994), 7 pt. 1 U.L.A. 548-62 (1997).
n258. Id.
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The agreement must be executed by the requisite number of members "in the same manner as a deed," and recorded in each county in which the development is located. n259 If the termination contemplates a sale of any real estate forming a part of the development, the agreement must set forth the minimum terms of the sale. n260
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n259. Id.
n260. Id. 2-118(a)-(b), at 548.
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When the property comprising the development is to be sold in connection with a termination of the project, the association acts as a trustee on behalf of the unit owners in effecting the sale and distributing the proceeds. n261 During the period prior to completion of the sale, the owners have the right to continue to occupy their units in the terminated development, unless the termination agreement provides otherwise. n262 During any period of continued occupancy, the owners remain liable for the payment of assessments to the association. n263
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n261. Id. 2-118(g).
n262. Id.
n263. Unif. Common Interest Ownership Act 2-118(e) (1994), 7 pt. 1 U.L.A. 549 (1997).
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If the property constituting the common interest community (development) is not to be sold and the community is a condominium or a planned community, title to all the real estate vests in the unit owners as tenants-in-common. n264 The interests of each unit owner following the termination are established by appraisal of the fair market value of each [*1052] owner's respective units; allocated interests (assessment obligations and voting rights); and, limited common elements (exclusive use common area) immediately prior to the termination. n265
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n264. Id. 2-118(f), at 549-50.
n265. Id. 2-118(j), at 550-51.
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The only provisions in Davis-Stirling relating to termination appear in section 1359 of the California Civil Code. n266 This section applies only to condominiums and provides that the court can order a sale of the entire project if one of the following occurs: (1) more than three years prior to the filing of the partition action, the project was damaged or destroyed rendering a material portion unfit for its prior use, and the condominium has not been rebuilt; (2) three-fourths or more of the project is destroyed, and the owners holding more than 50% interest in the common area oppose repair or restoration of the project; (3) the project has existed for over fifty years, is obsolete, and owners holding more than 50% of the interest in the common area oppose restoration of the project; or (4)the sale is made in accordance with the governing documents. n267 This code section applies only to condominiums, not the other forms of common interest developments. n268
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n266. Cal. Civ. Code 1359 (West 1982 & Supp. 1998).
n267. Id.
n268. Id.
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Some planned development governing documents address this issue, but others do not. Even those that provide for termination without unanimous approval, may violate California law. n269 Therefore, the legislature should consider adopting this section of UCIOA both because it permits a declarant, or owners, to determine that fewer than 100% can terminate a development, and because it provides a default provision. If the legislature considers this provision, it should consider whether the 80% vote requirement strikes the appropriate balance between permitting change in response to changing conditions, and protecting an owner's property interest.
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n269. See supra Part IV.B regarding changing an owners interest without his or her consent.
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b.
By Foreclosure of Lien Against the Entire, or Portion of, the Community
UCIOA addresses the unlikely prospect of the foreclosure [*1053] of a lien or encumbrance against the entire common interest development, and the more common prospect of a foreclosure of a lien against only a portion of the development, such as a unit (separate interest). n270 In both instances, the foreclosure does not withdraw the foreclosed property from the development unless the foreclosure relates to "withdrawable real estate," n271 or is a foreclosure of an encumbrance created by the association. n272 In the latter case, the person acquiring the property can require the association to amend the declaration to exclude the property from the development. n273
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n270. Unif. Common Interest Ownership Act 2-118(k)-(l) (1994), 7 pt. 1 U.L.A. 550-51 (1997).
n271. See id. 2-105(a)(8), at 523; and id. 2-110(d), at 537-38.
n272. Id. 2-118(k)-(l), at 551.
n273. Id.
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While foreclosure of blanket liens is not addressed in Davis-Stirling, such liens are addressed in section 1108.5(a)(2) of California Business and Professions Code and section 2792.3 in title 10 of California Code of Regulations, which require that common areas and common facilities be conveyed to the owners' association free of any liens or encumbrances. n274 The sections do not address what happens if the owners subsequently encumber the common area.
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n274. Cal. Bus. & Prof. Code 1108.5(a)(2) (West 1987 & Supp. 1998); Cal. Code Regs. tit. 10, 2792.3 (1990).
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UCIOA further provides that, in a condominium or planned community, if there is a lien or encumbrance against a portion of the development that has priority over the declaration, and that lien is foreclosed, the foreclosing parties may record an instrument excluding the acquired property from the common interest development. n275 Again, there is no similar provision in Davis-Stirling and the issue should be addressed.
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n275. Unif. Common Interest Ownership Act 2-118(1) (1994), 7 pt. 1 U.L.A. 551 (1997).
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V.
Governance
A.
Organization of Association
1.
Creation and Membership
Both UCIOA and Davis-Stirling require common interest communities to create an association by the date the first [*1054] unit (separate interest) is conveyed. n276 UCIOA, however, requires that the association be exclusively comprised of the owners within the development. n277 While all owners in California must be members of the association, some California governing documents permit associate members who have the right to use recreational facilities, but do not have voting rights. Some argue that section 7331 of the California Corporations Code, which permits two classes of membership if the articles or bylaws so provide, n278 authorizes this arrangement. Others argue, however, that there is no clear statutory authority for this arrangement, and that there should be.
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n276. Id. 3-101, at 571-72; Cal. Civil Code 1363 (West 1982 & Supp. 1998); Cal. Civ. Code Regs. tit. 10, 2792.8 (1997).
n277. Unif. Common Interest Ownership Act 3-101 (1994), 7 pt. 1 U.L.A. 571 (1997).
n278. Cal. Corp. Code 7331 (West 1982 & Supp. 1998).
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2.
Association Rights and Obligations
Section 3-102 of UCIOA sets forth an extensive list of powers that may be exercised by the owners' association, regardless of whether it is incorporated or unincorporated. n279 There is no similar provision in California law, but it is customary for the bylaws of the association to set forth a list of powers quite similar to those found in UCIOA. In addition, section 1363(c) of the California Civil Code states that if an owners' association for a California common interest development is organized as an unincorporated association, that association is deemed to have all of the powers of a nonprofit mutual benefit corporation, as set forth in section 7140 of the California Corporations Code. n280
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n279. Unif. Common Interest Ownership Act 3-102 (1994), 7 pt. 1 U.L.A. 572-74 (1997).
n280. See, Cal. Code Regs. tit. 10, 2792.21(b) (1997) which controls the content of the initial governing documents, imposes limitations on the authority of the Board to exercise certain powers without prior approval of the members. Cal. Civ. Code 1363(c) (West 1982 & Supp. 1998).
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a.
Standing
Under UCIOA, the association's standing to bring a lawsuit is broader than it is under California law. UCIOA gives the association standing to "institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affect- [*1055] ing the common interest community." n281 Section 383 of the California Code of Civil Procedure is similar in that it provides that the association has standing to: institute, defend, and participate in administrative proceedings; arbitrate and mediate in its own name; enforce the governing documents; and recover for damage to the common area, areas which the association is obligated to maintain or repair, and separate interests integrally related to damage to the common area. n282
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n281. Unif. Common Interest Ownership Act 3-102(4) (1994), 7 pt. 1 U.L.A. 572 (1997).
n282. Cal. Civ. Proc. Code 1354(b) (West 1982 & Supp. 1998).
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It is difficult to determine the extent to which UCIOA and California law differ because there are no reported California decisions interpreting the standing provisions. However, there is clearly one significant difference. UCIOA gives the association standing to enforce the governing documents against a tenant. n283 This is discussed below.
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n283. .Id. 3-102(4), at 573-74.
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b.
Engaging in Alternative Dispute Resolution
One of the powers listed in section 3-102(a)(18) of UCIOA is the power to adopt regulations which would mandate that disputes between the board of directors and unit owners or between two or more unit owners, regarding the common interest community, must be submitted to nonbinding alternative dispute resolution in accordance with the regulation. This must be done as a prerequisite to commencing a judicial proceeding. n284 California law imposes this obligation by statute rather than giving the association the power to decide whether to adopt alternative dispute regulations. n285
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n284. Unif. Common Interest Ownership Act 3-102(a)(18) (1994), 7 pt. 1 U.L.A. 573 (1997).
n285. Cal. Civ. Code 1354(b) (West 1982 & Supp. 1998).
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Under section 1354(b) of the California Civil Code, persons engaged in most disputes involving enforcement or interpretation of the governing documents of a common interest development must first endeavor to resolve those disputes through some form of alternative dispute resolution ("ADR"). n286 The parties are given a period of time to agree upon the mode of ADR they wish to use; it may be either binding or nonbinding. n287 It is unlikely that the legislature [*1056] will eliminate this provision and leave it up to the association to decide whether it wishes to engage in ADR as does UCIOA.
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n286. Id.
n287. Id.
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c.
Controlling Absentee Owners and Tenants
UCIOA presents some beneficial empowering language regarding the authority of the association to adopt rules and regulations affecting the use, or behavior, of occupants within residential units. n288 Among the authorized regulations, are those that restrict the leasing of units (separate interest) "to the extent that those rules are reasonably designed to meet underwriting requirements of institutional lenders." n289 This language is intended to authorize, for example, restrictions which limit the total number of units (separate interests) that can be leased at any given time. Many institutional lenders making loans on common interest properties follow guidelines which restrict the total number of leased units, currently set at 20%. n290
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n288. Unif. Common Interest Ownership Act 3-201(c) (1994), 7 pt. 1 U.L.A. 573 (1997).
n289. Id.
n290. 24 C.F.R. 234.26(e)(2) (1993).
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UCIOA further authorizes the association to take action directly against tenants who violate the development's governing documents. This includes, the authority to enforce rights against a tenant, including bringing an unlawful detainer action, and rights which the association could have exercised directly against the owner. n291 Evidently, these are not powers which can be limited by appropriate provisions in the declaration because there is no qualifying language to that effect.
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n291. Id. 3-102(d), at 573-74.
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If such a provision were adopted in California, the legislature should consider whether to permit the declarant and the owners to determine if the association should have this power. Such a power would solve many problems with tenants violating the rules. In some developments, however, it may discourage those who wish to rent units (separate interests). The owner has some protection because UCIOA conditions the Association's authority to initiate disciplinary action against a tenant upon providing notice and an [*1057] opportunity to be heard to both the tenant and landlord. n292
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n292. Id. 3-102(e), at 574.
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d.
Maintenance
Both UCIOA and Davis-Stirling provide that the association is responsible for maintaining the common elements (areas). n293 When the declaration is silent as to who has the responsibility for maintaining limited common elements (exclusive common area), however, there is conflict. Both UCIOA and Davis-Stirling provide default provisions to address this problem; but those provisions are different. n294
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n293. Unif. Common Interest Ownership Act 3-107 (1994), 7 pt. 1 U.L.A. 585-86 (1997); Cal. Civ. Code 1364 (West 1982 & Supp. 1998).
n294. Unif. Common Interest Ownership Act 3-107; Cal. Civ. Code 1364.
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Both Acts permit the declaration to alter the statutory default position. n295 Both Acts also provide that maintenance and repair of the unit is the responsibility of the owner. n296 They differ, however, in that UCIOA provides that the association is responsible for maintenance, repair and replacement of the common elements including the limited common elements. n297 Section 1364 of the California Civil Code, provides that, unless the declaration states otherwise, the owner is responsible for the maintenance and repair of any exclusive use common area appurtenant to the owner's unit. n298
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n295. Unif. Common Interest Ownership Act 3-107; Cal. Civ. Code 1364.
n296. Unif. Common Interest Ownership Act 3-107; Cal. Civ. Code 1364.
n297. Unif. Common Interest Ownership Act 3-107.
n298. Cal. Civ. Code 1364.
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One reason for placing the maintenance obligation of the exclusive use common areas on the association is that the association can better control the timing, quality and aesthetic appropriateness of the repairs. Therefore, the legislature should consider adopting the UCIOA provision.
e.
Assessments and Liens
i.
Regular and Special Assessments
UCIOA parallels section 1366 of the California Civil Code in setting forth certain statutory rules pertaining to the authority of community associations to impose assess- [*1058] ments. n299 The rules set forth in UCIOA, however, are less specific than those in Davis-Stirling. UCIOA provides that until the association makes a common expense assessment, the declarant shall pay all common expenses. n300 After an assessment has been made by the association, the assessments shall be imposed at least annually pursuant to a budget which provides for the allocation of assessments in accordance with the formula set forth in the declaration. This allocation is subject to the following exceptions, if required by the declaration: (1) assessments pertaining to expenses for limited common elements or benefiting fewer than all the units are allocated to those benefited units; (2) insurance assessments are allocated in proportion to the risks that are being insured; (3)utility assessments are allocated according to the usage of the utilities; and (4) assessments to recover expenses resulting from the misconduct of an owner are allocated to that owner. n301 If assessments are past due the board can impose an interest rate, sometimes as high as 18%. n302
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n299. Unif. Common Interest Ownership Act 3-115 (1994), 7 pt. 1 U.L.A. 598-99 (1997); Cal. Civ. Code 1366 (West 1982 & Supp. 1998).
n300. Unif. Common Interest Ownership Act 3-115(a) (1994), 7 pt. 1 U.L.A. 598-99 (1997).
n301. Id.
n302. Id.
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Assessment provisions under California law are much less flexible. Davis-Stirling requires the association to levy regular and special assessments sufficient to perform its functions. Annual increases in regular assessments, however, may not occur unless one of two conditions is met: (1)the board has complied with section 1365 of the California Civil Code, (which requires budgets to be prepared in accordance with detailed provisions), n303 and section 1366 (which requires distribution of the budget within specified times); n304 or (2)the board has obtained the approval of a majority of the voting power of owners constituting a quorum. n305
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n303. Cal. Civ. Code 1365 (West 1982 & Supp. 1998).
n304. Id. 1366.
n305. Id. A quorum, under section 1366 of the California Civil Code is more than fifty percent of the owners.
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In addition, except in emergencies, n306 the board may not [*1059] increase regular assessments more than 20% over the prior year's regular assessment; nor may it impose special assessments that, in the aggregate, exceed 5% of the total budgeted gross expenses for the year in which the assessment is imposed, unless a majority of the voting power of owners constituting a quorum of 50% of the owners approve the increase. n307
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n306. Section 1366(b) of the Civil Code identifies emergency situations as: (1)extraordinary expenses required by court order; (2) situations creating threats to safety; (3) expenses the association could not reasonably have foreseen; and (4) expenses associated with certain earthquake insurance surcharges. Cal. Civ. Code 1366(b).
n307. Cal. Code Regs. tit. 10, 2792.16, 2792.22 (1997) (ensuring that the original declaration will include consistent provisions).
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The original section dealing with imposing assessments was a compromise. After its enactment in 1986, the assessment provision was amended in 1987, 1990, 1991 and 1992, again, as a result of negotiation and compromise among industry interest groups. n308 It is unclear whether the legislature would be willing to revisit the issue, in order to give declarants and owners more flexibility in determining when and how much assessments may be increased, is uncertain.
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n308. Participating in the legislative process were the Department of Real Estate, the California Association of Realtors, the Community Associations Institute, the Executive Council of Owners Associations and others.
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ii.
Assessment Liens
UCIOA contains some beneficial rules regarding the authority of community associations to collect delinquent assessments through lien and foreclosure remedies. n309 Under UCIOA, recordation of the declaration creates a statutory lien, without the necessity of recording a Notice of Delinquent Assessment, as is required to create a lien under Davis-Stirling. n310 Both acts provide that the lien include not only the amount of the delinquent assessment, but also fees, charges, late charges, fines and other reasonable costs of collection. n311
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n309. Unif. Common Interest Ownership Act 3-116 (1994), 7 pt. 1 U.L.A. 600-04 (1997).
n310. Id.; Cal. Civ. Code 1367(b) (West 1982 & Supp. 1998).
n311. See Unif. Common Interest Ownership Act 3-102(a), 3-116(a) (1994), 7 pt. 1 U.L.A. 572-73, 601 (1997).
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Under UCIOA, the lien is in place prior to any delinquency. Thus, UCIOA contemplates that a delinquent owner, prospective purchaser of a unit, or a foreclosing lender will receive information regarding a specific delinquency by making a request to the association for information regarding unpaid assessments. Unit owners are then obligated to provide the information to prospective purchasers, which is [*1060] similar to California law. n312
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n312. See section 4-109(a)(2) of UCIOA, id. 4-109(a)(2), which is similar to section 1368 of the Civil Code. Cal. Civ. Code 1368 (West 1982 & Supp. 1998).
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A significant difference exists, however, between UCIOA and Davis-Stirling. Under UCIOA, the association's lien is prior to all other liens and encumbrances, other than the following: (1) liens and encumbrances recorded prior to the declaration, and not subordinated; (2) first security interests on the unit recorded prior to the date when the assessments became delinquent, but not as to assessments accrued within the six months prior to the lender initiating action to enforce the lien; and (3) liens for real property taxes and other governmental obligations. n313 In California, by contrast, community association assessment liens are subordinate to any lien or encumbrance recorded prior to the association's notice of delinquent assessment. The declaration may, and usually does, contain provisions making the lien subordinate to first trust deeds, even if recorded after the association's lien. n314
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n313. Unif. Common Interest Ownership Act 3-116(b) (1994), 7 pt. 1 U.L.A. 600 (1997).
n314. See Cal. Civil Code 1367(d) (West 1982 & Supp. 1998).
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The UCIOA provision, giving association assessment liens priority over first security interests in the amount of six months' of assessments, is intended to strike a balance between the interests of the development and those of the lender. n315 Lenders can protect themselves at the time of issuing a loan by factoring in the possibility of the inability to collect an amount equivalent to six months' assessments at foreclosure. Moreover, lenders are harmed if the association cannot afford to maintain the development because of its inability to collect assessments. Therefore, the legislature should consider adopting this provision.
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n315. Unif. Common Interest Ownership Act 3-116 (1994), 7 pt. 1 U.L.A. cmt. 2, 601 (1997).
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Under UCIOA, any action by a community association to enforce its assessment lien must be commenced within three years from the time the assessment becomes delinquent. n316 The process can be a foreclosure pursuant to a power of sale. n317 The Davis-Stirling Act contains no specific limitations period. Actions on written contracts and books of account, [*1061] however, must be commenced within four years. n318
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n316. Id. 3-116(e), at 601.
n317. Id. 3-116(j), at 601.
n318. Cal. Civ. Proc. Code 337 (West 1982 & Supp. 1998).
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Finally, UCIOA confirms that the association may seek to have a receiver appointed to assist in the collection of delinquent assessments. n319 While not stated in the Davis-Stirling Act, similar remedies would be available under California law. n320
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n319. Unif. Common Interest Ownership Act 3-116(l) (1994), 7 pt. 1 U.L.A. 601-03 (1997).
n320. See Cal. Ct. R. 349-355 (West 1996 & Supp. 1998).
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f.
Other Liens
UCIOA provides that, unless the association has encumbered the common areas of a development with a lien or security interest, (requiring approval of at least by 80% of the members) n321 a judgment for money against the association cannot become a lien on the common areas of the development. Instead, it becomes a lien against all the units in the common interest community at the time the judgment is entered. n322 The lienholder may look only to each owner's unit (separate interest), (and not to any other property of the owner) to satisfy his or her claim. n323 If the association has granted a valid security interest in the common areas to a creditor, that creditor must first resort to his or her rights against the common elements before attempting to enforce a lien against an individual owner's unit. n324
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n321. See Unif. Common Interest Ownership Act 3-112 (1994), 7 pt. 1 U.L.A. 591-92 (1997).
n322. Id. 3-117, at 605-06.
n323. See id. 3-117(a)(1), at 605.
n324. See id. 3-117(a)(2), at 605.
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If two or more units are subject to a lien, other than a deed of trust or mortgage, the owner of any of the affected units may pay the lienholder the unit owner's proportionate share of the total indebtedness. The unit owner, thereby, receives a release of the lien with respect to that owner's unit (separate interest). n325 Once such a payment is made, the association is prohibited from assessing or having a lien against that owner's unit for any portion of the common expenses incurred in connection with the lien. n326
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n325. Id. 3-117(a)(3), at 606.
n326. Id.
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This provision could be applied, for example, to a situation where an association obtains a bank loan to finance the [*1062] replacement of roofs and secures the payment of that obligation with a pledge of the proceeds that will be obtained by levying a special assessment. In that circumstance, UCIOA permits an owner to pay his or her proportionate share of the special assessment; thereby, alleviating any future liability on that assessment. n327 This could be important to an owner desiring to sell his unit free of past special assessment lien obligations.
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n327. See Unif. Common Interest Ownership Act 3-117 (1994), 7 pt. 1 U.L.A. 605-06 (1997).
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California has no analogous statutory provision. As the number of aging common interest developments increases, the need for bank financing for critically needed repairs and restoration work, for which there are not adequate reserves, is becoming increasingly common. In California, many lenders will not take a security interest in the common area for fear that it will be difficult, if not impossible, to obtain clear title and a marketable asset in the event of a default by the association. The main alternative is to obtain a security interest in future assessment revenues. Conservative lenders typically require that owners approve a special assessment, payable in installments, in an amount sufficient to timely amortize the loan.
UCIOA could provide California lenders and associations an alternative form of financing. Therefore, the legislature should adopt at least portions of these provisions of UCIOA.
g.
Insurance
UCIOA's approach to insurance requirements is more comprehensive and consistent than California's. Section 3-113(a) of UCIOA requires an association to maintain both property and liability insurance to the extent it is reasonably available, after the conveyance of the first unit. n328 The Act specifies that the property insurance must cover at least 80% of the actual cash value. n329
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n328. Id. 3-113(a), at 594.
n329. Id.
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In communities with horizontal boundaries, the property insurance must include the units, but need not include improvements made by the owner. n330 The comments to UCIOA note that requiring the association to insure both the unit [*1063] and common area, in cooperatives and horizontal or stacked communities, is a departure from the existing practice in the majority of states. n331 The drafters thought it preferable to insure the entire building since it simplifies claims procedures, particularly, where part of both the common elements and the unit have been destroyed. n332
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n330. Id. 3-113(b).
n331. Id. 3-113 cmt. 2, at 596.
n332. Id.
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Each association insurance policy must provide the following: (1) each owner is insured with respect to liability arising out of his or her interest in the common area or membership in the association; (2) the insurer waives its right to subrogation under the policy against an owner; (3)no act or omission by an owner, outside the scope of his or her authority on the behalf of the association, will void the policy; and (4)if the owner has other insurance covering the same risk at the time of loss, the association's policy must provide the primary insurance coverage. n333
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n333. Unif. Common Interest Ownership Act 3-113(d) (1994), 7 pt. 1 U.L.A. 594-95 (1997).
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UCIOA also requires the association to repair or replace any portion of the property for which insurance is required, unless the owners terminate the common interest community, or 80% of the owners, (including 100% of those owners whose limited common elements will be affected), agree. n334 [*1064] Finally, UCIOA requires the association to promptly notify all the owners if insurance is not readily available. n335
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n334. See id. 3-113(h), at 595-96. Cf. Cal. Civ. Code 1359 (West 1982 & Supp. 1998). Section 1359 of the Civil Code deals with partition in which an owner does not wish to repair or rebuild a damaged project; this has some relevance to section 3-113(h) of UCIOA. Section 1359 of the Civil Code, however, is more restrictive than section 3-113(h). See Cal. Civ. Code 1359; and Unif. Common interest ownership act 3-113(h) (1994), 7 pt. 1 U.L.A. 595-96 (1997).
First, section 1359 only applies to condominiums because this section was incorporated directly from the previous Condominium Act which only applied to condominiums. Second, section 1359 provides that the court may order partition only if one of the following is found:
(1) More than three years prior to the filing of the action, the project
was damaged or destroyed rendering, so that a material part was rendered
unfit for its prior use, and the condominium project has not been rebuilt
or repaired substantially to its state prior to the damage or destruction.
(2) Three-fourths or more of the project is destroyed or substantially
damaged and owners of separate interests holding in the aggregate more
than a 50 percent interest in the common areas oppose repair or restoration
of the project.
(3) The project has been in existence more than 50 years, is obsolete
and uneconomic, and owners of separate interests holding in the aggregate
more than a 50-percent interest in the common area oppose repair or restoration
of the project.
(4) The conditions for such a sale, set forth in the declaration, have been met.
Cal. Civ. Code 1359(b) (West 1982 & Supp. 1998).
n335. Unif. Common Interest Ownership Act 3-113(c) (1994), 7 pt. 1 U.L.A. 594 (1997).
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Unlike UCIOA, Davis-Stirling does not require associations to maintain insurance. Davis-Stirling, however, has provisions relating to insurance. If the association wishes to limit the liability of owners, directors, and officers, then it must satisfy certain insurance requirements in accordance with sections 1365.9 and 1365.9 of the Civil Code. n336 While these requirements will be discussed in greater detail below, n337 it is important to note that the amount of insurance required by these sections is inconsistent. Such amounts should be made consistent.
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n336. Cal. Civ. Code 1365.7, 1365.9 (West 1982 & Supp. 1998).
n337. See infra Part VI.
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The other insurance requirement in Davis-Stirling is contained in section 1365(e) of the Civil Code. n338 This section requires associations to provide a summary of the association's property, general liability, earthquake and flood insurance policies. This summary must include the name of the insurer, the type of insurance, the policy limits, and the amount of any deductibles. n339 The association must also notify the owners of any significant changes in coverage. n340
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n338. Cal. Civ. Code 1365(e) (West 1982 & Supp. 1998).
n339. Id.
n340. While these are the only insurance provisions that exist in Davis-Stirling, other California statutes and common law impose insurance requirements. For example, if the association has automobiles the association will have to comply with Cal. Veh. Code 16431 (West 1982 & Supp. 1998) if it has employees it will have to maintain workers compensation insurance Cal. Lab. Code 3700 (West 1982 & Supp. 1998) and the fiduciary duty the directors and officers owe the association presumably includes the obligation to buy both property and liability insurance when it is reasonable to do so. Cal. Veh. Code 16431 (West 1982 & Supp. 1998); Cal. Labor Code 3700 (West 1982 & Supp. 1998).
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There are additional requirements in both Acts but the discussion above demonstrates that the insurance requirements in UCIOA are different than those in Davis-Stirling. The major differences may be summarized as follows. First, UCIOA requires associations to maintain a variety of insur- [*1065] ance coverage, where reasonably available. n341 While Davis-Stirling requires the association to disclose the coverage it has and to maintain insurance if it wishes to gain limited immunity for it owners, directors, and officers, it does not require associations to maintain insurance. n342 Second, UCIOA's insurance provisions apply more consistently than do those in California; and they do not vary when dealing with director and officer liability, and owner liability as they do in California. n343
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n341. Unif. Common Interest Ownership Act 3-113 (1994), 7 pt. 1 U.L.A. 595-96 (1997).
n342. The doctrine of fiduciary duty may require California association' to maintain insurance, but it would be better to have a statute that is clear and consistent determine the insurance requirements. See discussion infra Part V.
n343. See Unif. Common Interest Ownership Act 3-113 (1994), 7 pt. 1 U.L.A. 595-96 (1997).
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h.
Rights and Obligations Found in Davis-Stirling and Not in UCIOA
Davis-Stirling covers many topics not mentioned in UCIOA. For example, sections 1365 and 1365.5 of the California Civil Code impose detailed requirements on community associations regarding to following: the content and distribution of annual budgets and year-end financial reports; the periodic evaluation of the adequacy of reserve accounts; and the obligation of association boards to conduct a quarterly review of the association's fiscal performance in comparison to the budget. n344 Section 1363.05 of the Civil Code imposes meeting requirements and section 1375 imposes numerous requirements in connection with filing a construction defect lawsuit to name a few. n345 Many should be simplified and made more easy to understand or eliminated.
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n344. Cal. Civ. Code 1365, 1365.5 (West 1982 & Supp. 1998).
n345. Cal. Civ. Code 1363.05, 1375 (West 1982 & Supp. 1998).
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3.
Board Members and Officers
a.
Election
UCIOA authorizes the declaration to include a period of declarant control, subject to limitation, during which the declarant may appoint and remove all directors and officers of the association. n346 It further provides that there must be at [*1066] least 1%, but not less than 25%, of director positions filled by vote of the owners other than the declarant, once 25% of the units (separate interests) in the development have been sold. n347
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n346. Unif. Common Interest Ownership Act 3-103(e) (1994), 7 pt. 1 U.L.A. 575-77 (1997). With the exception of master planned communities, the period of declarant control, however, must end no later than the earlier of the following: (1) 60 days after conveyance of 75% of the units; (2) two years after all declarants have stopped selling units; (3) two years after the declarant last exercises rights to add units (separate interests); (4) the day the declarant voluntary surrenders control. Id.
n347. Id. 3-103(e), at 575-77.
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Davis-Stirling does not address the issue of appointment of directors and officers by the declarant. The DRE Regulations, however, prescribe that "reasonable arrangements" be included in the declaration which include providing termination dates for declarant control. n348 Further, the declaration must establish a special procedure to assure that, from the time of the first election, at least 20% of the directors shall be elected solely by the votes of owners, other than the declarant, as long as the declarant maintains control. n349 In this respect, UCIOA is similar to California law.
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n348. Cal. Code Regs. tit. 10, 2792.18 (1997).
n349. Id. 2792.19(c)(1).
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UCIOA also provides that directors may only be removed from office on the affirmative vote of a two-thirds majority of a quorum of the members. n350 Directors elected by the declarant may only be removed by the declarant. n351 In California, the removal of directors from office is governed by sections 7221 and 7222 of the Corporations Code n352 and section 2792(b), title 10, of the California Code of Regulations. n353 The cumulative voting provisions provided in these regulations are designed to afford the opportunity for a significant minority bloc among owners to gain and maintain representation on the board. However, cumulative voting provisions make it is practically impossible to remove directors from office, unless the recall is directed at all directors, in which case the protective rules concerning cumulative voting rights do not apply. Also, the provisions are difficult to understand. The legislature should consider the simplified voting procedures presented by UCIOA.
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n350. Unif. Common Interest Ownership Act 3-103(g) (1994), 7 pt. 1 U.L.A. 577 (1997).
n351. Id.
n352. Cal. Corp. Code 7220, 7221 (West 1990 & Supp. 1998).
n353. Cal. Code Regs. tit. 10 2792(b) (1997).
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[*1067]
b.
Powers
The powers given to the board are also similar under the two acts. UCIOA provides that the board may act on behalf of the association, except as limited by the declaration, bylaws, or other sections of the Act. n354 Section 7210 of the California Corporations Code is similar in that it provides that all powers are vested in the board, except where that member approval is required either by state law or the governing documents. n355
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n354. Unif. Common Interest Ownership Act 3-103(a) (1994), 7 pt. 1 U.L.A. 575 (1997).
n355. Cal. Code Regs. tit. 10 2792(b) (1997).
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Not all powers given to the board under the two acts are similar, however. UCIOA addresses the obligation of the executive board to provide members with a summary of the budget within a specified period of time. The budget is then subject to member ratification. n356 If the members refuse to ratify the budget, the budget from the previous fiscal period continues until ratification is obtained. n357
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n356. Unif. Common Interest Ownership Act 3-103(c) (1994), 7 pt. 1 U.L.A. 576 (1997).
n357. Id.
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In contrast, under section 1365 of the California Civil Code, community associations are obligated to provide detailed budget information to their members, not less than forty days, or more than sixty days, prior to the beginning of the fiscal year. n358 Unless the budget proposes assessment increases which require member approval under section 1366 of the Civil Code, n359 budgets are not required to be approved by the members. The absence of such an approval requirement is consistent with the overall concept of corporate governance contemplated by the California Corporations Code in which the board of directors have a fiduciary obligation to manage the affairs of the corporation. This approach is preferable to that of UCIOA.
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n358. Cal. Civ. Code 1365 (West 1982 & Supp. 1998).
n359. Cal. Civ. Code 1366 (West 1982 & Supp. 1998).
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Another difference is that UCIOA provides that once declarant control has ended in residential common interest communities, the successor board, has the right to terminate the following contracts within 90 days: (1) any management contract, employment contract, or lease of recreational or parking areas or facilities; (2) any lease or contract entered [*1068] into between an association and the declarant; and (3)any contract that is not bona fide or was unconscionable when made. n360 The authority to terminate contracts, however, does not extend to the termination of any lease that would result in a termination of the development or reduce its size. n361 In nonresidential communities, the declaration can permit contracts with the declarant to continue after the declarant control has ended. n362
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n360. Unif. Common Interest Ownership Act 3-105 (1994), 7 pt. 1 U.L.A. 583 (1997).
n361. Id.
n362. Id. 1-207, at 513.
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In California, while these issues are not addressed in Davis-Stirling, they are addressed in the DRE Regulations which control the content of the initial governing documents and generally limit the duration of contracts with the association to a period of one year. n363 This section should be thoroughly considered before adoption. Permitting management and employment contracts to be terminated upon ninety days notice, following transition from developer control could make it difficult for the association to secure stable contractual relationships with managers and employers, particularly toward the end of the developer control period. On the other hand, the provision may prevent abuse by declarants. Such abuse occurred in Florida, where declarants made the association enter into ninety-nine year recreational leases that were detrimental to the association.
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n363. Cal. Code Regs. tit. 10, 2792.21 (1997).
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4.
Meetings of the Association
UCIOA requires community associations to conduct at least one membership meeting per year and permits other special meetings to be called by the president, by a majority of the executive board, or by unit owners representing at least 20% of the voting power of the association, unless a smaller percentage is specified in the bylaws. n364 It also provides minimum requirements for the timing of notice of member meetings and requires that the notice include "the items on the agenda." n365 The section does not specifically restrict action to the items identified on the agenda, although [*1069] that limitation is implied.
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n364. Unif. Common Interest Ownership Act 3-108 (1994), 7 pt. 1 U.L.A. 587 (1997).
n365. Id.
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Matters of internal governance of community associations in California are governed primarily by the Nonprofit Mutual Benefit Corporation Law. n366 For example, the California Corporations Code requires a regular meeting of the members to be held in any year in which directors are to be elected. It permits as few as 5% of the voting power of the members, as well as the president and board of directors, to call special meetings of the members. n367
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n366. Cal. Corp. Code 7110-8910 (West 1990 & Supp. 1998).
n367. Id. 7510(b), (e), at 236-37.
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In spite of the reluctance of the original drafting task force to address matters of internal community association governance in the Davis-Stirling Act, in the years since the Act's adoption in 1985, numerous provisions have been added to address matters that are either already covered in the California Corporations Code or which are customarily addressed in corporate bylaws. For example, section 1365(e) of the California Civil Code provides that notices of meetings must specify the matters the board intends to present for action by the members. Other authorized matters, however, may also be presented for action at the meeting. n368 That rule is similar to the rule found in section 7511(b) of the Corporations Code requiring notice of regular membership meetings. n369 One advantage of adopting a Uniform Law is that it would minimize the enactment of duplicative or inconsistent statutes.
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n368. Cal. Civ. Code 1365(e) (West 1982 & Supp. 1998).
n369. Id.; Cal. Corp Code 7511(b) (West 1990 & Supp. 1998); see generally Cal. Civ. Code 1363, 1363.05 (West 1982 & Supp.1998) for other Davis-Stirling provisions relating to the conduct of meetings.
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a.
Quorums
UCIOA presents quorum rules for both member and board meetings. n370 In the case of membership meetings, the minimum quorum permitted is 20% of the voting power, determined at the inception of the meeting, unless the bylaws provide otherwise. n371 For board meetings, the minimum quorum is the presence, at the inception of the meeting, of direc- [*1070] tors entitled to cast 50% of the votes on the board. n372
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n370. Unif. Common Interest Ownership Act 3-109 (1994), 7 pt. 1 U.L.A. 587 (1997).
n371. Id.
n372. Id.
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In California, with the exception of votes on increases in assessments requiring member approval under Davis-Stirling, n373 the minimum quorum permitted for members meetings is one-third of the voting power unless the governing documents provide otherwise. n374 In order to provide a measure of assurance that a very low quorum percentage will not be abused, the Corporations Code states that if the quorum for membership meetings is fixed at a percentage less than one-third of the members, and less than one-third of all members attend the meeting, action may be taken only on those matters that were identified in the notice of the meeting. n375
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n373. For votes on assessment increases, section 1366(b) of the Civil Code establishes a minimum quorum for the vote at 50% of the owners of the association. Cal. Civ. Code 1366(b) (West 1982 & Supp. 1998).
n374. Cal. Corp. Code 7512(a) (West 1984 & Supp. 1998).
n375. Id. 7512(b), at 240.
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In the case of director meetings, a majority of the number of directors authorized in the articles or bylaws constitutes a quorum of the board, unless otherwise provided in the articles or bylaws. The law does not permit a quorum that is less than 20% of the directors authorized, or less than two, whichever is larger. n376
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n376. Id. 7211(a)(7), at 197.
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As to both member and director meetings, the California law parallels UCIOA in stating that if a person leaves a meeting after the quorum is established, the meeting may nevertheless continue. n377 For both board and member meetings, valid action requires approval by a majority of the members required to constitute the quorum. n378
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n377. See id. 7211(a)(8), at 197, 7512(c), at 240.
n378. Id.
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b.
Voting and Proxies
The are a few significant differences between the way UCIOA and California law handle voting and proxies. UCIOA addresses three issues regarding membership voting: (1)the casting of votes allocated to units (separate interests) owned by more than one person; (2)proxy voting; and (3)the rights of persons leasing units to vote in lieu of the owner or [*1071] owners. n379 The manner in which votes allocated to units (separate interests) owned by more than one person is similar in the two acts. The manner in which proxy voting and lessees' voting rights are treated, however, is different.
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n379. Unif. Common Interest Ownership Act 3-110 (1994), 7 pt. 1 U.L.A. 588 (1997).
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Section 3-110(a) of UCIOA is similar to the rule stated in section 7612 of the California Corporations Code. Both provide that when memberships are held in two or more names, the vote of any one of the co-members is binding upon all. n380 However, if more than one co-member seeks to exercise the voting rights of the membership, the vote of a majority of the co-members binds all. n381
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n380. Id. 3-110(a), at 588; Cal. Corp. Code 7612 (West 1984 & Supp. 1998).
n381. Supplementing this rule in the California statute is section 7517 of the Corporations Code which authorizes a person or persons counting ballots to accept a ballot signed by one of several co-members. Cal. Corp. Code 7517(b) (West 1990 & Supp. 1998).
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Some of the rules in UCIOA regarding proxies are similar to California law; others are more restrictive. Section 7613 of the Corporations Code and section 3-110(b) of UCIOA both authorize voting by proxy. n382 UCIOA provides that once a proxy has been issued, the owner of the unit to which the vote is appurtenant may only revoke the proxy by actual notice of revocation to the person presiding over the meeting. n383 In California, the owner who issued the proxy may revoke it by attending the meeting. n384 Under UCIOA, proxies terminate one year following their date of issuance, unless the proxy specifies a shorter term. n385 In California, if the proxy is not coupled with an interest, it is valid for eleven months from the date of issuance, unless a shorter term is stated. n386
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n382. Cal. Corp. Code 7613 (West 1990 & Supp. 1998); Unif. Common Interest Ownership Act 3-110 (1994), 7 pt. 1 U.L.A. 588 (1997).
n383. Unif. Common Interest Ownership Act 3-110(b) (1994), 7 pt. 1 U.L.A. 588 (1997).
n384. Cal. Corp. Code 7613 (West 1990 & Supp. 1998). This section provides that the proxy is also terminated if the person issuing it dies and the corporation before the vote is counted, receives written notice of such death or incapacity. Id.7613(c).
n385. Unif. Common Interest Ownership Act 3-110(b) (1994), 7 pt. 1 U.L.A. 588 (1997).
n386. Cal. Corp. Code 7613 (West 1990 & Supp. 1998).
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Under California law, association bylaws may restrict, or eliminate, the use of proxies all together. n387 Because Califor- [*1072] nia law permits action to be taken by written ballot, without a meeting, n388 (except in director election with cumulative voting) some California community associations have eliminated proxy voting all together in favor of voting provisions that require all owners to cast votes personally, either by attending a meeting or executing and returning a written ballot to the association. n389 UCIOA does not deal with proxy voting, presumably because this topic is generally covered by corporate law.
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n387. Id.
n388. Id.
n389. It should be noted that UCIOA does not prohibit voting by written ballot.
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UCIOA and California practitioners deal with the issue of lessee voting differently. UCIOA permits a declaration to provide that certain specified matters must be voted on by lessees, rather than unit owners, as long as the unit owners also are given notice of any meeting at which the owner's lessee is entitled to vote. n390 Generally, governing documents in California provide for voting solely by owners of the separate interests. In some declarations, however, particularly those pertaining to properties in resort areas, where units are often leased, provisions are made for voting by long-term lessees on certain specified matters. The absence of lessee voting provisions in California is no doubt attributable both to the fact that the issue is a relatively new one, and to the fact that unit owners are extremely reluctant to provide lessees with any voice or authority with respect to important matters such as collection of assessments, discipline, or maintenance of common area.
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n390. Unif. Common Interest Ownership Act 3-110(c) (1994), 7 pt. 1 U.L.A. 588 (1997).
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As discussed above, UCIOA gives the association significant power over tenants. This power is balanced by giving tenants more rights. n391 It would be interesting to know if there are fewer lessee problems in states that have adopted 1994 amendments to UCIOA.
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n391. See supra Part V.A(4)(b).
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[*1073]
VI.
Liability
A.
Declarant Liability
1.
Breach of Fiduciary Duty
UCIOA clearly states that non declarant board members shall exercise the degree of care required by a director of a corporation. The declarant-appointed board members, however, "shall exercise the degree of care and loyalty required of a trustee." n392 The comments to section 3-103 further state that UCIOA intentionally holds the declarant appointed board members to a higher standard of care. n393
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n392. Unif. Common Interest Ownership Act 3-103(a) (1994), 7 pt. 1 U.L.A. 575 (1997).
n393. Id. cmt. 6, at 577.
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Section 7231 of the California Corporations Code does not distinguish between declarant appointed directors and officers and other directors and officers. n394 Neither is held to the standard of a trustee. Instead, section 7231 of the California Corporations Code requires all directors to exercise ordinary care. This includes acting in good faith, in a manner the director believes to be in the best interests of the corporation, and acting with the care of an ordinarily prudent person. n395
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n394. Cal. Corp. Code 7231 (West 1984 & Supp. 1998).
n395. Cal. Corp. Code 7231(b) (West 1984 & Supp. 1998). Section 7233 of the California Corporations Code is also relevant in that it permits the board of directors to approve transactions in which a director has a financial interest, but only if the transaction is just and reasonable to the corporation. Id.7233.
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Case law has supplemented the statutory law. In Raven's Cove Townhomes, Inc. v. Knuppe Development Co., n396 the court reiterated that directors "may not make decisions for the association that benefit their own interests at the expense of the association and its members." n397 In addition, the court implied that stricter standards apply while the declarant controls the project and "closer judicial scrutiny may be felt appropriate." n398 Thus, while the Corporations Code does not hold the declarant appointed directors to a higher standard of care, case law may. This potential conflict should be clarified by statute.
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n396. 171 Cal. Rptr. 334 (Ct. App. 1981).
n397. Id. at 343.
n398. Id.
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[*1074]
2.
Construction Defect
A thorough discussion of liability for construction defects is beyond the scope of this article. n399 Furthermore, this topic has been under review by the Lockyer Task Force for the past couple of years. It is unlikely that the task force or the legislature will propose that the provisions in UCIOA dealing with breach of warranty should replace California law. A short discussion of the difference between the two Acts, however, will demonstrate some differences.
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n399. See James Acret, California Construction Law Manual (5th ed. 1997 & Supp. 1998); Thomas E. Miller, California Construction Defect Litigation (1993 & Supp. 1997); see also, Curtis Sproul & Katharine Rosenberry, Advising California Condominium and Homeowner Associations ch. 11 (Continuing Educ. of the Bar eds., 1994 & Supp. 1997).
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UCIOA holds the declarant liable for both express and implied warranties. n400 A declarant impliedly warrants that a unit will be suitable for its intended purposes, is free from defective materials, and is constructed in accordance with the law and sound construction principles. n401 A successor of the declarant, assuming the successor is not an affiliate, is not liable for the misrepresentations of a previous declarant, warranty obligation on improvements made by a previous declaration, or any breach of fiduciary obligation by a previous declarant. n402
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n400. Unif. Common Interest Ownership Act 4-113, 4-114 (1994), 7 pt. 1 U.L.A. 548-62 (1997).
n401. Id. 4-114, at 632; see also id.4-113, at 630-31; id. 4-115, at 634; and id. 4-116, at 635-36.
n402. Id. 4-114 cmt. 8, at 633-34.
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Under California law, developers may be sued under the theories of implied warranty and strict liability. Strict liability covers the same types of conditions as implied warranties: defective materials, construction not in accordance with the law or sound construction principles. In some situations, however, an implied warranty theory may be the better theory. For example, if a plaintiff can not establish a defective condition, but can prove the lack of habitability or fitness for a particular purpose, an implied warranty theory is preferable. In other situations, strict liability may be a better option for a plaintiff. For example, when the plaintiff is a successive purchaser, he or she will probably not be able to recover under an implied warranty theory, n403 but may recover [*1075] under a strict liability theory. n404
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n403. See E. Hilton Drive Homeowners' Ass'n. v. W. Real Estate Exch., Inc., 186 Cal. Rptr. 267, 268 (Ct. App. 1982).
n404. See Thomas E. Miller, California Construction Defect Litigation ch. 4 (1993 & Supp. 1997).
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With a noticeable absence of hard data to support the contentions of the debating parties, this area of law is currently hotly debated. The main issue - the extent to which developers, subcontractors and those involved in the construction process should be liable - is difficult to resolve. Thus, the legislature has enacted statutes that nibble around the edges of the problem. These statutes, such as section 1375 of the California Civil Code, which provides numerous requirements for pursuing construction defect litigation, often raise more problems than they solve. n405 The legislature needs to enact comprehensive, easy to understand legislation in this area.
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n405. See Curtis Sproul & Katharine Rosenberry, Advising California Condominium and Homeowner Associations 11.13 (Continuing Educ. of the Bar eds., 1994 & Supp. 1998).
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The statute of limitations for breach of warranty under UCIOA is six years, with some exceptions. The parties may agree, however, to reduce the statute of limitations to two years. n406 Under California law, the maximum statute of limitations for patent defects is four years. n407 For latent defects it is ten years. Shorter statutes may apply when the association was aware, or reasonably should have been aware, of the defect. n408 Thus, UCIOA provides the consumer greater protection in some respects, in others less.
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n406. Unif. Common Interest Ownership Act 4-116 (1994), 7 pt. 1 U.L.A. 588 (1997).
n407. Cal. Civ. Proc. Code 337.1 (West 1982 & Supp. 1998).
n408. Id. 337.15.
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B.
Director and Officer Liability
UCIOA provides that board members, not appointed by the declarant, must exercise the degree of care and loyalty required by the directors and officers of a corporation pursuant to local law. n409 It does not provide for immunity for directors who perform their duties in good faith.
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n409. Unif. Common Interest Ownership Act 3-103(a) (1994), 7 pt. 1 U.L.A. 575 (1997).
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Davis-Stirling, on the other hand, provides that volunteer officers and directors who serve in exclusively residential developments, shall not be personally liable for actions while [*1076] serving on the board of an exclusively residential development, if the following conditions are met: (1) the director or officer was acting within the scope of his or her association duties; (2) the act was performed in good faith and was not willful, wanton or grossly negligent; and (3) the association maintained at the time of the claim of injury general liability, and director and officer liability insurance coverage in the amount of at least $ 500,000 if the development consists of 100 or fewer separate interests and $ 1,000,000 if the developer consists of more than 100 separate interests. n410 Therefore, Davis-Stirling provides more protection for directors and officers than does UCIOA.
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n410. Cal. Civ. Code 1365.7 (West 1982 & Supp. 1998).
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C.
Owners' Liability
UCIOA provides that, "[a] unit owner is not liable, solely by reason of being a unit owner for an injury or damages arising out of the condition or use of the common elements." n411 It further provides that, "an action alleging a wrong done by the association, including an action arising out of the condition or use of the common elements, may be maintained only against the association and not against any unit owner." n412
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n411. Unif. Common Interest Ownership Act 3-111(a) (1994), 7 pt. 1 U.L.A. 589 (1997).
n412. Id. 3-111(b), at 589.
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Under UCIOA, only the declarant is liable for the declarant's torts in connection with any of the common interest community that the declarant is obligated to maintain. n413 Further, if an alleged wrong occurred while the declarant was in control, and the association gives the declarant notice of a suit arising from such wrong and an opportunity to defend, the declarant is liable to the association or any unit owner for all tort losses not covered by insurance. This includes the association's attorneys fees and costs of litigation. n414
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n413. Id. 3-111(a), at 589.
n414. Id.
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Under California common law, individuals owning property as tenants-in-common are jointly and severally liable for injuries occurring on the premises. n415 Accordingly, each owner can be liable for the entire judgment, not just his or [*1077] her proportional share. Prior to the enactment section 1365.9 of the California Civil Code, n416 this law applied to common interest developments in which owners owned the common area.
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n415. Ruoff v. Harbor Creek Community Ass'n, 13 Cal. Rptr. 2d 755 (Ct. App. 1992).
n416. Cal. Civ. Code 1365.9 (West 1982 & Supp. 1998).
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In Davert v. Larson, n417 a motorist and passenger brought an action against an individual, who owned a 1/2500 undivided interest in a ranch and recreational community, for injuries sustained when a horse which escaped from the community collided with their car. n418 The court held that even though the association was obligated to maintain the recreational community, the owners who owned the community as tenants-in-common were liable for damages caused by negligent maintenance. n419 The court further held that an owner of only a 1/2500 interest in the community could be sued for the entire amount of damages. n420
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n417. 209 Cal. Rptr. 445 (Ct. App. 1985).
n418. Id. at 446.
n419. Id. at 448.
n420. Id. at 447.
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This holding was followed in Ruoff v Harbor Creek Community Ass'n n421 - a case in which an elderly guest of an owner fell down a flight of stairs in the common area of a condominium complex. The stairs were part of the common area, owned by the unit owners as tenants-in-common, and the association had the obligation to maintain the common area. n422 Although the association maintained insurance, the plaintiffs were concerned that the insurance was not sufficient to cover the injuries and, therefore, also sued the owners as individuals. n423 Consistent with established common law, the court in Ruoff held that the owners could be held jointly and individually liable for the injuries. n424
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n421. 13 Cal. Rptr. 2d 755 (Ct. App. 1992).
n422. Id. at 758.
n423. Id.
n424. Id. at 760.
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Attorneys responded to the Ruoff decision by recommending that those who owned common area as tenants-in-common, in condominiums and planned development, transfer all of the common area except a small portion to the association. In order to satisfy the statutory definition of condominium, it is necessary for some of the common area to be owned as tenants-in-common. Some developers, however, [*1078] have created condominiums where the area held as tenants in common was only a small portion of airspace.
The legislature also responded to the problem by adding, and later amending, section 1365.9 of the California Civil Code. While patterned after UCIOA, this section specifies particular insurance requirements. n425 Section 1365.9 provides that:
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n425. See discussion supra Part VI. While UCIOA has insurance requirements it does not specify particular amounts in connection with the liability of either the directors and officers or units owners.
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Any cause of action in tort against any owner of a separate interest arising solely by reason of an ownership interest as a tenant in common in the common area of a common interest development shall be brought only against the association and not against the owners of the separate interests, n426
provided the association has in effect for the cause of action at least $ 2,000,000 in general liability insurance coverage and the condominium consists of 100 or fewer separate interests and $ 3,000,000 when it consists of more than 100 separate interests.
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n426. Cal. Civ. Code 1365.9 (West 1982 & Supp. 1998).
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Section 1365.9 limits only the liability exposure of individual unit owners; it does not provide complete immunity from tort liability covered by the statute. n427 If a judgment exceeds the policy limits specified in the statute, the question of whether the association has an obligation to levy an assessment against each owner to pay for the uninsured loss it is still unanswered.
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n427. Id.
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VII.
Topics Not Covered by UCIOA
This article has discussed most of the major topics covered by UCIOA. If the legislature were to consider adopting UCIOA, it would have to consider the topics which are covered by Davis-Stirling, but not UCIOA, to determine if these should be included in a comprehensive act. For example, Davis-Stirling has an Open Meeting Act, n428 procedures for paying assessments under protest, n429 detailed procedures for disputing liability for construction defects n430 rules regarding [*1079] access to telephone wiring, n431 and rules regarding funds received by managing agents. n432
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n428. Id. 1363.05.
n429. Id.1366.3.
n430. Id. 1375.
n431. Id. 1364.
n432. Cal. Civ. Code 1363.2 (West 1982 & Supp. 1998).
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Several of the provisions that are covered in Davis-Stirling, and not UCIOA, are piecemeal legislation. A legislator introduced the bill to solve the problems identified by a single constituent or interest group, rather than to solve a widespread problem. Therefore, if the legislature considers adopting a version of UCIOA, it should carefully evaluate whether each of the provision in Davis-Stirling, not covered by UCIOA, is necessary.
Conclusion
California community association law is in a constant state of flux. In some instances, it is extremely confusing. Thus, a significant problem exists for volunteer officer and directors, who are required to follow the law while managing common interest communities. It also presents problems for owners who can not determine what rights they have.
Adopting a version of UCIOA may provide a solution to this problem because the California legislature is less likely to amend a uniform act than it is to amend Davis-Stirling. Since 1987, the California version of the Uniform Commercial Code has only been amended twelve times, even though it contains 11,004 sections, whereas Davis-Stirling, with only twenty-seven sections, has been amended thirty-nine times.
In addition to stability, UCIOA may also provide benefits to developers and people who own interests in common interest developments. For example, if the legislature adopted UCIOA as part of Davis-Stirling, small projects would be exempt, and developers would have the ability to exempt commercial and industrial developments.
Also, in the appropriate circumstances, owners would have the ability to alter boundaries within their separate interests, between their separate interests, and between common area and exclusive use common areas. It would be clear that where appropriate, common areas could be sold with less than unanimous consent. The courts would know how to distribute proceeds in a foreclosure sale involving common area, eminent domain proceedings, and bankruptcy proceedings. [*1080] Those buying from a declarant in a foreclosure sale would know precisely which of the declarants' rights they were purchasing.
It would be easier for boards of directors to manage associations. For example, associations would have the same power as landlords in taking action against tenants who violate covenants. In a foreclosure sale, the association could collect up to six months of delinquent assessments. Insurance requirements also would be clearer. The association could decide whether to use arbitration and mediation prior to filing a lawsuit.
On the other hand, in some instances existing California law provides more benefits to developers and owners than does UCIOA. For example, under California law, developers have greater flexibility in annexing property to the initial development, and it is easier for owners to amend the governing documents.
Whether the provisions relating to liability are better under UCIOA, depends on one's frame of reference. On the one hand, developers are held to a higher fiduciary standard under UCIOA. On the other hand, however, the Act does not recognize strict liability for construction defects. Regardless of one's perspective UCIOA does provide one significant benefit. It is much easier to understand because it does not attempt to micro manage disputes.
In effect, because existing California law provides some benefits that
UCIOA does not, UCIOA should not be adopted uncritically. On the other
hand, existing California law relating to common interest developments
is confusing, unnecessarily micro manages these developments, and contains
provisions that make the operation of these developments more expensive
than necessary. Further, the law constantly changes. These problems force
owners to incur unnecessary expenses in hiring lawyers to interpret the
constantly changing law. Adopting a modified version of UCIOA should help
solve these problems. Thus, the legislature should conduct a comprehensive
review of the law in this field and enact comprehensive legislation that
does not constantly change.
107CFB
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