Late yesterday, the California Legislature passed (and the Governor signed) AB 130 which funds California’s annual budget.  Oddly, the State’s funding bill included language capping HOA fines at $100* and added a few more hoops for Board’s to jump through when imposing those fines.  

NOTE THAT: Because funding bills are effective immediately, this is now California law!   This means each Association must immediately revise their Fine Policies in order to comply.  Here is what sections 5850 and 5855 now require in order to impose a fine:

• The Association must distribute a copy of the fine schedule to each owner as part of the annual policy statement.
•  If the Association passes a new fine/rule since sending the annual policy statement, that must be communicated via mail to each owner.
•  That fine shall not exceed the lesser of the monetary penalty set forth in the fine policy or $100* per “violation”.
•  *The exception is if the violation “may result in an adverse health or safety impact on the common area or another association member’s property” and the Board makes a written finding to that effect.  In that case, the full value of the fine, as identified in the fine schedule, can be imposed.
•  No late charge or interest may be charged on the fine.
• When sending notice of a fine/hearing, the Board must include a copy of the fine schedule, including any supplements thereto.
• That notice must be sent to the owner at least 10 days prior to the hearing.

(ii)   It must include time, date, etc of the hearing, describe the violation, and the board is to move the meeting to executive session at the request of the owner.

(iii)  Then, notice of the Board’s findings mailed to owner within 15 days of hearing.

Q&A:

1. How will this affect us?  Practically speaking, using fines to resolve legal conflicts short of IDR/ADR (followed by court action) has been eviscerated as a useful tool to resolve common enforcement issues. When typical California homes are in the millions, $100 fines have little power to change behavior.

• Does this destroy our enforcement process?  No. Generally, you should still start with a standard courtesy notice outlining the violation, followed a month or so later with a notice calling the owner to a fine hearing (either at $100 or the full amount identified on the fine schedule following the board’s written finding of a health or safety violation. Then, instead of a third notice, skip directly to IDR, ADR, TRO or lawsuit as appropriate.

• What is an “adverse health and safety” impact?  Some violations are plainly not health and safety issues (e.g., most aesthetic violations, improper tenant registration, failure to submit architectural applications and other forms, etc.). However, in our opinion noise violations, most pet violations, smoking violations and other nuisances may arise to health and safety violations. A closer call is whether violations such as short-term rental violations would constitute health and safety violations; likely they cannot be unless there is some component of an actual disturbance to other residents.

• How would a Board make that finding?  Unless the owner attends the hearing and agrees to executive session (which should be highly encouraged) the Board might have to discuss and develop its position in an open board meeting and put its position in writing.  For liability purposes, this motion should be made referencing the property by APN or other internal client number (like when discussing collections accounts), rather than by owner name or address. These written findings will often come under scrutiny by not only the violating member but by opposing attorneys and judges as well. Consequently, legal counsel should be involved in drafting these writings.

• Generally, what should our fine schedule look like?  Existing fine schedules will need to be revised to include a statement akin to: “The fine for violations of the Rules & Regulations will be generally be $100. However, upon a written finding by the Board of Directors, any violation resulting in an ‘adverse health or safety impact’ on the Common Area or another member’s property, the full value of the fines identified below may be imposed.” 

• Can we impose daily or weekly fines?  Maybe?  The statute limits the fine to $100 “per violation” and we are happy to argue that each day the same violation exists constitutes a new violation – but a judge could see things otherwise. And if we ask for $100 a day for 90 days (= 9k), and are awarded $100 total, the homeowner may be seen as the prevailing party when it comes to attorney fees.  So this is a risk proposition which may vary from client to client and court (small claims) to court (Superior).

Community Legal Advisors urges all Associations to review their Fine Policies in light of this new law.  Contact us now if your community desires assistance understanding the new laws or reviewing and revising your Fine Policies.