January 2014
As of January 1, 2014, a new law went into effect in California concerning commercial and industrial common interest developments (CIDs). Prior to the enactment of this law, both commercial and residential CIDs were governed by the Davis-Sterling Common Interest Development Act (Davis-Sterling). Now, developers and owners of commercial CID property are governed by the Commercial and Industrial Common Interest Development Act (Act), which creates Part 5.3 of Division 4 of the California Civil Code (CC). This advisory provides a brief description of just some of the changes affecting commercial CIDs resulting from the new law.
Under the Act, CIDs are defined as “a common interest development that is limited to industrial or commercial uses by law or by a declaration of covenants, conditions, and restrictions that has been recorded in the official records of each county in which the common interest development is located. For purposes of this section, ‘commercial use’ includes, but is not limited to, the operation of a business that provides facilities for the overnight stay of its customers, employees, or agents.” [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][See CC § 6531.]
The provisions of the new Act are similar to Davis-Sterling, although the new law tries to streamline the many governing requirements of the owners’ association. These changes are sensible in light of the fact that Davis-Sterling contains many burdensome requirements that are more appropriate for residential communities. Because CID owners occupy their properties for commercial purposes, the essential nature of the property is more akin to a commercial space than to a residential one, and CID owners are more likely to be aware of their obligations of making timely payments to the association (as well as less interested in establishing relationships with their neighboring commercial or industrial neighbors).
Noticeably absent from the new Act are the many member disclosure obligations and member due process rights that were added to Davis-Sterling over the years in the name of consumer and homeowner protection. For instance, none of the obligations to provide documents to prospective purchasers that exist under Davis-Sterling are carried over into the new Act. Similarly, Davis-Sterling’s requirements for notification to members of proposed new operating rules or changes to existing rules are eliminated.
Further, CID member rights with regard to open meetings, voting, inspection of records, and the obligation of the CID Board to provide financial disclosure and other information annually, as well as a statement of how reserve requirements have been calculated, a summary of insurance maintained, and specific reserve funding disclosure forms, have all been scaled back or eliminated. There are also changes related to the collection of assessments and dealing with delinquent enforcement, as well as dispute resolution.
As may now be apparent, these are fundamental changes that may make CIDs more appealing to commercial developers and easier for commercial owners to operate, albeit at a loss of some statutory protections. If you are interested in forming a CID, or purchasing property in a CID, you should be fully aware of how these changes could affect you. Our attorneys at Buynak, Fauver, Archbald & Spray, LLP are equipped to answer questions related to this new law, and other sophisticated land use and real estate matters, as well as business and employment law matters.
This Advisor is one of a series of business, real estate, employment and tax advisories prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. It is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution of this Advisor.
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