The Davis-Stirling Act is a multi-faceted California law that regulates homeowners associations by serving as a lengthy list of do’s and don’ts. A recent revision of the law in 2014 sought to clarify for HOA boards and homeowners what is expected of each other.
Here are a few major points that HOAs must know about the Davis-Stirling Act.
One of the key elements of the Davis-Stirling Act is the requirement for governing documents. In addition to requiring CC&Rs, articles of incorporation (in most cases), and bylaws, the act also clarifies the hierarchy of these documents. From most authority to least:
- State, county, and city law
- CC&Rs (Declaration of Covenants, Conditions, & Restrictions)
- Articles of Incorporation
- Election Rules and other Rules & Regulations
- Parliamentary Procedure
When an incident is in doubt or there are inconsistencies between the documents, the most authoritative document rules.
Reserve Funding Studies
Most HOAs realize that there are laws and regulations requiring some amount of reserve funding. Some may not know that reserve funding studies are also required every three years. These studies look at the expiration of various HOA responsibilities, such as roads, pools, exterior paint, roofs, etc. The cost of these expected expenses is then estimated, and the amount of reserve necessary is calculated.
Exclusive Use of Common Areas
The Davis-Stirling Act outlines the necessary procedures for granting exclusivity of common area property. Previously, in some mismanaged HOAs, common areas were being sectioned off for private use, usually by the HOA board members and their close friends. The updated Davis-Stirling Act institutes rules about the scenarios in which common areas can be privatized, specifically allowing assigned parking and disability accommodation.
Conflict of Interest Standards
The 2014 revision also clarified conflict of interest standards. Contracts associated with personal benefit to an individual board member may be voided as a breach of fiduciary duty. For example, assigning a vendor contract to one’s own business or a relative’s is not allowed. Accepting bribes from contractors, such as money, vacations, personal discounts, or other gifts, is also a violation of the new conflict of interest standards. Board members with a potential conflict of interest are expected to fully disclose their situation and recuse themselves from any pertaining voting procedures.
The State can and has passed temporary or permanent amendments to the Davis-Stirling Act. For example, during the drought that struck California in the early 2010s, the civil code was changed to prevent HOAs from fining residents who stopped watering their lawns (usually a violation of landscaping maintenance rules). This same update absolved homeowners of any HOA bylaw responsibilities to power-wash the exterior of their homes.
While these two amendments have been repealed with the official end of the drought in April 2017, there are others still in place, such as the right for homeowners to upgrade their landscaping to drought-resistant plants or artificial turf.
About Scott Litman Insurance Agency
At Scott Litman Insurance Agency, we are dedicated to protecting HOAs like yours. We have a unique understanding of the industry and the common risk exposures that you face in your daily operations. In fact, we find that 90% of the policies we review are missing coverages that violate the Covenants, Conditions, and Restrictions (CC&R), exposing the board, HOA and management to lawsuits – which is why our comprehensive policies are tailored to meet your specific needs at competitive prices. For more information about our products, contact our experts today at (818) 879-5980 ext. 201, or fill out our online form.