Homeowners Association Rules in California: What Can the HOA Regulate?

To understand what authority a homeowners association (HOA) has to regulate behavior in a residential development in California, it is necessary to understand how this association is set up and the laws that regulate it, primarily the Davis-Stirling Common Interest Development Act found at California Civil Code Section 4000. The authority of the HOA is also limited by two legal documents: its bylaws that describe the procedure for selecting the board of directors and its duties, and a declaration of covenants, conditions and restrictions, commonly known as CC&Rs, that set out homeowner rules.

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While the term homeowners association sounds like it would be relevant for everyone owning a home in California, this is not, in fact, the case. A person who holds the deed to a single family home will not be part of a homeowners association. Nor will a person owning a duplex or even a multi-unit apartment complex. In that sense, the term is somewhat misleading.

A homeowners association is only necessary when property is owned jointly by a variety of homeowners. This can happen in California in residential developments with common areas. Such properties are termed common interest developments, or CIDs.

Under California's Davis-Stirling Common Interest Development Act, a common interest development is described as a residential development that includes common areas owned and used by those owning units in the development. A condominium is a common form of a common interest development. In a condominium, the property owners hold an undivided interest in common in a portion of real property, coupled with a separate interest in a dwelling unit. Because multiple people hold undivided interests in common in the real property, the CID must be governed by an association that includes all of the owners.

These real estate developments are governed by the Davis-Stirling Act if they meet certain requirements. The development must:

1. Include a common area owned either by a homeowners association or by the owners of the separate interests who possess appurtenant rights to the beneficial use and enjoyment of the common area.
   
2. Record a declaration, a condominium plan and a final parcel map.
   
3. Convey one or more separate interests coupled with interests in the common area or membership in the association.
   

Other common types of CIDs in California are community apartment projects, planned developments and stock cooperatives. Everyone owning an interest in a CID automatically becomes a member of the homeowners association.

Read More: Common-Interest Property Ownership in California: How Does it Work?

The Davis-Stirling Common Interest Development Act is California law and found at Section 4000 of the Civil Code. Enacted in 1985 and substantially rewritten in 2012, this law governs condominiums, cooperatives and planned unit developments in the state. The Act permits those developing a CID to create a homeowner association to govern the development.

Under the Act, an HOA can be seen as a quasi-government entity. It acts much like a municipal government, providing critical services like utilities, road maintenance, lighting in common areas and garbage service. Many also offer landscaping and security services.

The developers draft a Declaration of Covenants, Conditions and Restrictions (CC&Rs) for the HOA. This is a legal document filed with the county recorder and recorded against every unit within the HOA. Once recorded, it is binding on the development residents, serving as a sort of constitution of the HOA.

The HOA is operated like a corporation, governed by a board of directors for the benefit of the owners. The HOA board is selected by the property owners and has authority to enact rules that are legally binding upon residents. It also assesses homeowners, as needed, to pay for the services provided and to maintain common areas. It also has the legal authority to fine homeowners who don't follow the rules and CC&Rs, place liens on the interests of those who don't pay assessments or fines, and/or take them to court.

The Davis-Stirling Act gives the HOA board a framework for governing the association and for resolving disputes about management decisions. The law also details the responsibilities of the HOA board of directors. In addition to collecting assessments, the HOA board of directors must pay HOA bills, manage its finances and develop budgets.

In California, an HOA board can purchase insurance coverage for directors and officers to protect board members from personal liability for negligent or inappropriate actions taken on behalf of the association. The Davis-Stirling Act exempts volunteer HOA board members from personal liability if they act in good faith and in the best interest of the homeowners association and also exercise reasonable care.

The two types of rules governing an HOA are the bylaws and the CC&Rs. These are both legal documents that must be filed under the Davis-Stirling Act. They are usually drafted by attorneys for the development project early in the planning stage. The bylaws are a set of rules describing how the HOA will be run. The CC&Rs set out the rules homeowners in the development must follow.

Read More: Homeowners Association Bylaws

The homeowners association must pay both operating costs and maintenance fees for the development. To do so, the board of directors levies assessments on homeowners. Often, this takes the form of monthly dues, which can be increased by the board if necessary. Supplemental assessments are also possible. Under California law, the board of directors cannot raise the monthly assessments by more than 20 percent annually, unless 50 percent or more of the homeowners approve the increase.

The finances of the HOA are a matter of concern for all of the homeowners who are entitled to prior notice when things change. If the HOA board decides to increase the monthly assessment, the law requires that homeowners be notified in writing at least 30 days before the increase starts. This notice cannot be given more than 60 days before the increase.

The Davis-Stirling Act authorizes the board of directors of an HOA to issue fines to homeowners who break the association rules or damage the common areas of the community in some manner. However, there are very specific procedural guidelines the HOA board must follow.

First, the homeowner is entitled to notice at least 10 days before a board meeting at which the matter will be reviewed. The homeowner has the right to appear at the meeting and present her case to the board before the members determine if she has committed the offense. If the board decides to issue a fine to the homeowner, it is obligated to give her notice in writing within 15 days of the ruling.

If a homeowner fails to pay a fine or a regular or special assessment within 15 days of the date payment is due, his account is considered delinquent. The board of directors can, and often does, assess a late fee, which is commonly 10 percent of the monthly assessment, for an owner's delinquent account. If the late fee and the assessment are still not paid, the Davis-Stirling Act allows the board to put a lien on the property interest in the total amount of the unpaid fine or assessment, any late fees, and any attorney fees or costs the board incurred.

What happens if the homeowner simply ignores the lien? The same law that authorizes a lien gives the board the legal right to foreclose. If the suit goes all the way to judgment, the HOA board can sell the homeowner's interest in the property to pay off the lien.

The law requires that most financial and other HOA records must be open to homeowner review. That means homeowners must be permitted access. For example, homeowners have the right to inspect the projected budget for a fiscal year at least 45 days before it goes into effect. In fact, a homeowner can inspect almost any HOA record as long as he pays for copying and postage. The documents open to review include:

• Annual budget report.
• State tax returns.
• Federal tax returns.
• Account balances.
• Reserves summary.
• All membership lists.
• Interim financial statements.
• Executed contracts.
• Check registers.
  
• Meeting agendas and minutes.

Obviously, homeowners are entitled to know the HOA rules that they are expected to follow, as well as their financial responsibilities. The board of directors must produce annual disclosures, as well as special disclosures, for the property owners. The disclosures include information about rules and rule changes, fines, all financial information including budgets and assessments, meeting minutes, information about insurance and lien collection policies.

Homeowners are also legally entitled to notice of where and when association meetings will be held and their agendas. They are also entitled to review the complete balance sheet for a fiscal year during the first four months of the new fiscal year.

The idea behind condominiums or other common interest developments is that each unit owner must give up a certain degree of freedom of choice in order to promote the health, happiness and peace of mind of the majority of the unit homeowners. This is natural since the owners are all living in close proximity and using areas and facilities in common.

A CID offers many advantages to a homeowner. Generally a CID is well-maintained, providing great aesthetics. A property owner in a CID can be confident that the bad taste or bad behavior of any of the other owners won't lower property values, given the authority of the HOA to regulate. And there is less hands-on effort required by the homeowner to maintain the premises since the HOA often deals with matters like garbage removal, recycling, landscaping and snow removal.

In exchange, the HOA has the right to regulate much of the exterior of the building — how it is painted, landscaped, illuminated and decorated. The board of directors may establish rules and regulations governing many issues ranging from where an owner can park her car to what she is permitted to display on a balcony. As long as the HOA does not discriminate in a manner forbidden by federal or state laws, it can regulate much of what a homeowner does that might impact the other owners. The extent and level of regulation will vary from one HOA to another, depending on the contents of the CCRs.

Read More: Home Improvement Laws in California

The HOA cannot regulate everything. Homeowners have rights too, and in some cases individual rights outweigh the rights of the association. For example, any homeowner can seek permission to modify the property to make it more accessible to disabled persons. The HOA can set some conditions, but cannot deny the requests as long as the homeowner pays for them herself. Likewise, a homeowner has a right to have a pet. The law specifies that no governing documents passed or amended after January 1, 2010, can prohibit a homeowner from keeping one pet as long as it is not dangerous to others.

Homeowners are also entitled to have satellite dishes if they want to install them. While the board can govern screening and placement, it cannot deny the homeowner the right to the dish. Similarly, homeowners have the right to put in certain solar installations. The board can set reasonable restrictions, but these cannot substantially increase the cost or decrease the efficiency. Associations cannot forbid a homeowner from displaying in his own separate area, signs, posters, flags or banners as long as they are not commercial. The board can restrict posters or signs that constitute a nuisance or contain obscenity.

Other rights of a homeowner that the HOA cannot prohibit include: the right to incorporate drought resistant plants in their landscaping; install electric car charging stations as long as the homeowner pays for them and obtains architectural approval; and the right to display the American flag in the homeowner's separate area.

Read More: How to Sue a Homeowners Association