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Living in a California
COMMON INTEREST DEVELOPMENT
Published by the State of California, Department of
Real Estate in August 2002
This publication is designed to provide general information
in response to some of the more frequently asked questions
regarding living in a common interest development (CID). We
hope it contributes to your understanding and expectations
of home ownership in a CID.
Since this brochure does not contain specific legal information
or guidance, it should only be used as a general source of
information. If you wish to research the subject matter further,
you may wish to consult with an attorney or an industry professional
experienced with CIDs.
1. What is a common interest development (CID)?
A CID is descriptive not only of a certain type of real estate
and form of home ownership, but also of a life-style that
is becoming more and more common to the American way of life.
To understand the concept, it is important to know that there
is no one structural type, architectural style, or standard
size for CIDs. They come in a variety of types and styles,
such as single family detached houses, two story townhouses,
garden style units with shared “party walls,”
and apartment-like, multi-storied high rises. Currently in
California, there are tens of thousands of CIDs which range
in size from a simple two unit development to a large complex
having thousands of homes, many commonly owned facilities,
and multiple associations under the auspices of one overall
master association. However, despite the wide range of differences
that may exist among CIDs, all CIDs are similar in that they
allow individual owners the use of common property and facilities
and provide for a system of self-governance through an association
of the homeowners within the CID.
The most common type of association of homeowners is the nonprofit
mutual benefit corporation. This is a corporation in which
the members of the corporation vote for a board of directors
which runs the affairs of the corporation. However, some associations,
usually the older ones, are unincorporated associations. In
many ways, unincorporated associations are treated the same
as mutual benefit corporations under California law.
2. Do you have to join the association?
Membership in the association(s) is automatic. When a person
buys a lot, home, townhouse, or condominium in a common interest
development, he/she automatically becomes a member of the
association(s).
3. What are Covenants, Conditions and Restrictions (CC&Rs)?
The Declaration of the Covenants, Conditions and Restrictions,
or CC&Rs, contains the ground rules for the operation
of the association. This governing document identifies the
association’s common area and responsibilities, explains
the obligation of the association to collect assessments,
as well as the obligation of the owners to pay assessments.
It also states that the association may sue owners for violations
of the rules or failure to pay assessments, and explains what
happens if there is any destruction of property in the development
as a result of fire or earthquake. Usually, the CC&Rs
will also state the duties and obligations of the association
to its members, insurance requirements, and architectural
control issues.
4. How are the CC&Rs enforced?
California laws allow that either the association or an owner
in a common interest development may file a lawsuit asking
the court to enforce the CC&Rs. The law currently requires,
with some exceptions, that either the owner or the association
must offer to engage in some form of alternative dispute resolution
process before filing a lawsuit. You may wish to consult with
an attorney who specializes in this type of law if you are
faced with or contemplating an enforcement matter.
5. What are Bylaws?
As stated above, the CC&Rs generally state how an association
is to be operated. In almost every instance the association,
through its board of directors, has the ultimate responsibility
for managing the association. As the association is usually
a corporation, Bylaws establish the rules by which the corporation
will be run. Bylaws usually set forth how members vote for
the board of directors, the number and term limit of members
of the board of directors, the duties of the board, the duties
of the officers, and other incidental provisions.
6. Does the Department of Real Estate assist with the enforcement
of the Bylaws and CC&Rs?
CIDs are subject to the Davis-Stirling Common Interest Development
Act (California Civil Code Sections 1350 et seq.). This Act
is intended to provide homeowners with a system of self-government
and dispute resolution. The Department of Real Estate reviews
the legal framework of all new CIDs to ensure compliance with
the Subdivided Lands Law as part of the public report application
process before homes are offered for sale to the public. Once
sales have commenced, the Department’s jurisdiction
is limited to the subdivider’s obligations under the
public report, which does not include intervention in association
disputes. Presently, there is no state or local agency that
directly regulates associations or their members.
7. Who is in charge of the association?
The homeowners are in charge of the association. Often, homeowners
will elect a board of directors to operate the association
and preserve, enhance and protect the value of the CID, but
the board answers to the homeowners. It should be noted that
it is not unusual for the board to contract with a professional
management company to run the day-to-day affairs of the association.
Ultimately, however, it is the board who is responsible for
the oversight of the homeowner association.
8. What is the board of directors and how are its members
elected?
The board of directors governs the association. Its members
are elected yearly or less frequently, depending upon the
terms mandated in the governing documents of the association.
The governing documents also determine the number of directors.
Directors are elected by the members of the association (homeowners)
who vote for vacancies as they occur. Normally, each lot or
unit has one vote no matter how many people own it, with the
notable exception that the subdivider may, for a time, have
up to three votes for each lot or unit he/she owns.
9. How can you serve on the association's board of directors?
There are two ways to become a member of the board of directors.
You can request that the association or nominating committee
place your name on the election ballot so other members of
the association will have an opportunity to vote for you in
the next election or you can ask the board of directors to
consider appointing you to any interim vacancy on the board.
10. What are the responsibilities of the board of directors?
The board has the ultimate responsibility for operating the
association. Board members must deal in good faith on behalf
of all the homeowners and exercise reasonable care. The board
makes sure that the association’s money is collected,
its bills are paid, the association is operated efficiently,
and violations of the rules of the association are addressed.
For example, the board is responsible for reviewing the association’s
bank statements, preparing a budget, and distributing the
budget (or budget summary) to the members prior to the beginning
of the association’s fiscal year. The board must also
prepare a fiscal year-end financial statement for distribution
to the members. There are numerous other things for which
the board is responsible, as set forth in the association’s
CC&Rs, Bylaws, the Corporations Code and the Davis-Stirling
Common Interest Development Act (California Civil Code Sections
1350 through 1376). Even if the board of directors opts to
contract with a professional management company to run the
day-to-day affairs of the association, the board of directors
is still ultimately responsible for management of the association.
11. Are there other opportunities to volunteer in the association
besides the board of directors?
Usually, an association will have a number of committees that
perform valuable functions. For example, the architectural
committee oversees requests for modifications to properties
in the development and generally attempts to make sure that
modifications and other improvements are consistent with the
existing architecture of the development. There may be other
committees to join, depending on the type of development in
which you live. An association may have a landscape committee
to oversee landscaping. There may be a welcoming committee
that greets new homeowners or an election committee that coordinates
the election of the board of directors. Committees are usually
established by the association’s Bylaws, CC&Rs,
and/or the board of directors. Let your board know that you
would like to actively participate in your association.
12. How does the association pay its bills?
Each association has a budget that is prepared based on the
common area obligations of the CID, and distributed to all
of its members. The budget determines how much money the association
is going to need to operate for the following year. The association
has the right to bill the members for their fair share of
the budgeted amount. This billing is known as an assessment,
which may be paid via monthly invoices, coupons supplied by
the association, or some alternative method. Ideally, the
association collects sufficient money through these assessments
and pays the bills for the services and goods contemplated
in the budget. If the assessments collected are insufficient
to pay the bills, the board of directors is allowed to levy
what is known as a special assessment. Without member approval,
the total of special assessments in any fiscal year cannot
exceed 5 percent of the gross budgeted expenses for that year.
By paying your fair share of the obligations of the association,
through the budget and assessment process, you are proportionally
paying for the current and long term maintenance obligations
of the association. Of course, all of the other owners are
doing so as well.
13. How is the amount of the monthly assessment determined?
When the budget is prepared, the amounts necessary for the
daily operation and long term reserves for maintenance and
replacement are determined based on the level of service for
which the association is both required and willing to pay.
For example, sometimes there are specific items defined in
the CC&Rs that require a certain level of maintenance
by the association. Once the annual amount is determined,
then it must be collected from the members in order for the
association to operate. Each member’s assessment is
usually collected monthly, in 12 equal installments. Some
associations collect assessments on a quarterly or annual
basis. The CC&Rs will normally indicate the frequency
of assessment collections.
14. Are there different types of assessments or fees?
There are several types of assessments that may apply to your
association. The California Civil Code defines assessments
as either being regular or special. Regular assessments are
needed for the operating (day-to-day) and reserve (long-term
maintenance) activities of the association.
Special assessments are those levied by the association for
major repairs, replacement, or new construction of the common
area or for a one-time, unanticipated expense which cannot
be covered by the regular assessment (e.g., insurance premiums
that unexpectedly “sky rocket”).
Note, a special assessment should not be confused with a monetary
penalty levied by the association against an individual owner
to reimburse the association for an expense such as damage
to the common area, or imposed as a disciplinary measure for
a violation of the rules and regulations. Homeowners can be
fined for damaging common areas and/or violating any rules
and regulations of the association.
Some CIDs establish user fees or special charges for services
and activities that are not customary. Typically, these are
imposed on an owner specifically benefiting from the service,
such as an owner who wants to use the common area pool, clubhouse,
or tennis courts to entertain private guests. The fees are
usually on a pay-as-you-go basis and generally cannot become
a lien on the owner’s unit or interest.
There are other types of assessments that may be designated
by the CID homeowners association. For example, an association
may have an assessment for cable television service. A “reimbursement
assessment” may be levied against an individual owner
as a charge for damage to the common area resulting from an
act by the owner or an owner’s guest.
The best place to look for the different types of assessments
that may apply to a CID is in the CC&Rs of the association.
15. Who can raise the amount of the assessment?
The board of directors can increase the amount of the assessment
by following certain procedures mandated by California Civil
Code Section 1366. Even if the governing documents are more
restrictive, the board of directors may not increase the regular
assessment more than 20 percent per year, without the approval
of the owners. The board must circulate a budget to the membership
no less than 45 days but no more than 60 days prior to the
beginning of the fiscal year. If the budget indicates that
an assessment increase greater than 20 percent is necessary,
a majority of the members of the association must approve
the assessment. There are also provisions for a board to increase
an assessment more than 20 percent without member approval
in cases of emergency such as an extraordinary expense required
by order of a court, or for repairs to the common area.
16. What happens if you do not pay your assessments?
Usually, the association will send you a reminder letter as
a first step. The law is specific in California regarding
the due date of assessments and the overall process that an
association must follow regarding deliquent assessments. The
law states that if an assessment is not paid within 15 days
of the due date, a delinquency occurs. At this point, the
association can add a charge to your assessment in the form
of a late fee in the amount of $10.00 or ten percent of the
monthly assessment amount, whichever is greater, unless the
CC&Rs specify a lesser amount. Again, the law covering
this area is quite clear and the board must follow these procedures.
Once a year, the association will send each owner a copy of
the assessment collection policy, which will tell you the
amount of the late fee. If your assessment becomes over 30
days delinquent the association has the right to assess interest
up to 12 percent per year on the balance which is owed and
unpaid.
If you still fail to pay your assessments, the matter may
be referred to an attorney or forclosure service. The association
has the right to lien your property for the amounts owed as
well as other costs such as attorney's fees.
Ultimately, the association can foreclose and take your property
for you failure to pay assessments. A personal judgment may
also be entered against you.
As you can see, it is imperative that all owners pay their
assessments in a timely manner. Failure by several owners
to pay their assessment obligation could place the association
in financial jeopardy.
17. Are there other rules in an association?
An association’s board of directors may establish rules
and regulations governing issues ranging from where you can
park to what you can place on a balcony or deck. Associations
frequently have guidelines and rules that specify the type
of landscaping that may be installed or in some instances,
not installed. Rules and regulations can be just as enforceable
in an association as the CC&Rs, Bylaws and applicable
laws. The most frequent type of miscommunication between an
owner and the association usually arises from an owner being
unaware of the rules and regulations when the association
attempts to enforce them. You can easily prevent such misunderstandings
by making certain you have a current copy of the rules and
regulations, which may be obtained from the association or
the management company.
18. Can you make improvements to your home?
The answer is generally yes, depending on the type of home
that you have (condominium, townhouse, detached, etc.). However,
in addition to the conditions in the CC&Rs, most associations
have established rules and regulations (also known as Architectural
Guidelines) which must be followed in order to make any alterations
or improvements. Generally, associations assist members who
wish to improve their property as long as the improvement
is performed in a manner consistent with the CC&Rs and
rules and regulations.
19. Who do you contact if you are having problems with or
questions regarding the home interior? The association common
area? Neighbors? Paying assessments?
The first place to look for answers to your questions is the
CC&Rs. Then you should speak to a board member or, if
your association has contracted with a management company,
they may be able to provide assistance. Problems with the
interior of a home normally are the responsibility of the
owner. The association’s common area is managed by the
association, so the appropriate contact is either one of the
association’s board members or, if applicable, the management
company. When there is a dispute between neighbors, sometimes
it is best resolved between those owners. Where a dispute
involves payment of assessments or an infraction of the association
rules or CC&Rs, it would be appropriate to contact the
board of directors and/or the management company.
20. What is a management company and what does it do?
A management company is a separate business enterprise usually
hired to act as the agent of the association. As an agent
for the association, they take their direction specifically
from the association’s board of directors. Typical contractual
responsibilities of the managing agent include a variety of
services to the association, such as collecting assessments,
paying the association’s bills, taking direction from
the board of directors for enforcement of rules infractions,
and obtaining various vendors to perform services. Other possibilities
for management company duties include assisting with the budget
process; preparing meeting agendas and minutes for the board
of directors; or serving as a neutral third party to help
solve problems that can occur in CIDs. Additionally, the managing
company may advise the board of directors on how to comply
with relevant California Civil Code requirements and assist
with appropriate and timely compliance.
21. Can owners rent to someone else?
Some CIDs restrict the number of units that may be rented
by owners. Some CC&Rs require that a rental agreement
acknowledge that the tenancy is subject to all of the rules
and regulations of the association. Some associations’
rules and regulations also require that you provide the association
with a copy of the rental agreement. In most associations,
the CC&Rs state that the owner of the property being rented
is responsible for the conduct of the tenant. Naturally, it
is in the best interest of all parties to prevent problem
situations between tenants and owners of other units. If your
tenant does damage to the common area or creates a nuisance
(e.g., loud music or pet problems), the disturbance could
become your problem and the association may fine you.
22. What are your individual responsibilities as an owner
living in a CID?
Primarily, you are responsible for paying your assessments
on time and abiding by the CC&Rs and all other rules and
regulations which exist for community harmony.
23. What are your individual rights as an owner living in
a CID?
Your individual rights as an owner living in a CID are based
upon the laws of the state of California and the documents
you signed at the time of purchase. Prior to making a purchase,
it is advisable to thoroughly review the CC&Rs and any
other governing documents applicable to the CID. You may also
wish to attend a board meeting and obtain copies of minutes
from previous board meetings. The CID should be able to demonstrate
that it has adequate insurance coverage, a solvent budget
and a sufficient reserve account.
Generally, the rights of owners include:
• The right to participate in meetings of the board
of directors and to be heard.
• The right to enter into dialogue with your association
board of directors with regard to any problem you may perceive
in the development.
• The right, with some exceptions, to utilize an alternative
dispute resolution process, if a dispute arises between you
and the association prior to the involvement of the court
system.
24. What should I do if I decide to sell my home?
You may wish to contact a real estate professional, the board
of directors, the professional management company (if your
CID has one) and/or an escrow company for assistance with
the many details involved with selling your home. There are
a number of documents that an individual owner is legally
required to provide to a prospective purchaser of a unit in
a CID. You will want to make sure that the buyer is aware
of the rules and regulations of the association as well as
the assessment obligation so there is not a problem or misunderstanding
which could jeopardize the sale of your home.
Until the sales transaction is completed and title is transferred,
the owner of record is responsible for all assessments and
fines unless otherwise stated in the sales and purchase agreement.
This includes new assessments approved during the sale and
purchase that become due while the sale is pending.
CONCLUSION
A successful and viable CID is generally one in which homeowners
assume an active role, not only by attending association meetings,
voting and paying dues on time, but also by running for elected
offices, serving on committees and participating in group
activities. While governing documents help establish a foundation,
involved owners build the CID and make it a community.
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