Navigating California’s AB 572: Balancing Affordability and HOA Financial Realities

Introduction:

In a significant move towards safeguarding housing affordability, California Governor approved Assembly Bill No. 572 on October 11, 2023. This legislation, now Chapter 745, amends Section 5605 of the Civil Code, specifically targeting common interest developments. The aim is to address the imposition of assessments and, more importantly, to protect owners of deed-restricted affordable housing units from excessive increases in regular assessments.

Key Amendments:

The Davis-Stirling Common Interest Development Act, which governs common interest developments, lays down the framework for assessments. AB 572 introduces amendments to Section 5605 of the Civil Code to impose restrictions on annual increases in regular assessments, with a particular focus on affordable housing units.

Annual Assessment Limits:

– The bill stipulates that for any fiscal year, annual increases in regular assessments cannot be imposed unless the board complies with specific requirements outlined in Section 5300 or obtains approval from a majority of a quorum of members at a meeting or election.

General Assessment Limits:

– The legislation places general limitations on the board’s ability to impose regular assessments. The board may not impose a regular assessment more than 20 percent greater than the preceding fiscal year, and special assessments in aggregate cannot exceed 5 percent of the budgeted gross expenses without member approval.

Deed-Restricted Affordable Housing Units:

– A groundbreaking provision of AB 572 is the protection it extends to owners of deed-restricted affordable housing units. For associations recording their original declaration on or after January 1, 2025, the board is restricted from imposing a regular assessment that exceeds 5% plus the percentage change in the cost of living, capped at 10% greater than the preceding assessment.

Cost of Living Calculation:

– The bill defines “percentage change in the cost of living” as the change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index or, if unavailable, the California Consumer Price Index for All Urban Consumers.

Exemptions:

– Certain exemptions apply to this restriction, including developments exceeding zoning ordinance requirements, those in areas without applicable zoning ordinances, and developments with 20 units or fewer.

Assembly Bill No. 572 brings both positive and negative implications for Homeowners Associations (HOAs) in California, particularly concerning the imposition of assessments and the protection of owners of deed-restricted affordable housing units.

Pros and Cons to Consider:

Positive Effects for HOAs:

Affordability Preservation:

– The primary positive impact is the preservation of affordability for owners of deed-restricted affordable housing units. The bill sets limits on the increase of regular assessments for these units, ensuring that residents of affordable housing are shielded from substantial financial burdens.

Community Equity:

– AB 572 fosters a sense of equity within HOAs. By specifically addressing affordable housing units, the legislation promotes fair treatment of residents, preventing disproportionate financial strain on those in need of affordable housing.

Compliance Framework:

– The bill establishes a clear framework for HOAs to follow when imposing assessments. By outlining specific requirements for annual increases and imposing limitations on regular and special assessments, it provides a structured approach that promotes transparency and accountability.

Adaptation to Changing Costs:

– The inclusion of the cost of living change in the calculation of assessment increases allows HOAs to adapt their financial plans to the economic realities of their region. This can help associations make necessary adjustments without unduly burdening homeowners.

Negative Effects for HOAs:

Financial Constraints:

– One of the primary concerns for HOAs is the potential financial constraints imposed by the limitations on assessment increases. The inability to impose assessments more than 20 percent greater than the preceding fiscal year may limit the association’s ability to address unforeseen expenses or changes in the real estate market.

Exemptions Complexity:

– The exemptions outlined in the bill, such as those for developments exceeding zoning ordinance requirements or those in areas without applicable zoning ordinances, could introduce complexity for HOAs. Determining eligibility for these exemptions may require legal and administrative resources.

Impact on Small Developments:

– Small developments with 20 units or fewer may find it challenging to navigate the assessment limitations. While larger developments may have more resources and flexibility, smaller associations could face difficulties in managing their finances within the prescribed constraints.

Member Approval Requirements:

– The bill introduces the need for member approval for certain assessment increases. While this promotes democratic decision-making, obtaining approval from a majority of a quorum of members can be a time-consuming process and may pose challenges for HOAs in terms of convening meetings and ensuring participation.

In conclusion, while Assembly Bill No. 572 introduces important protections for affordable housing units, it also places constraints on HOAs that may affect their financial flexibility and decision-making processes. The overall impact will likely vary based on the size, financial health, and specific circumstances of each HOA.

See the entire bill.