New State Law for Commercial and Industrial Condos

​Existing Condo Law

Common interest developments (“CIDs”) in California are governed by the Davis-Stirling Common Interest Development Act (“Davis-Stirling Act”).  CIDs mean a condominium project, planned development or stock cooperative.  A central purpose behind the Davis-Stirling Act is protection of residential condo owners, who may be regular folks whose homes happen to be condos.  The Davis-Stirling Act is also intended to provide guidance and rules for residential homeowners associations, which consist of and are often managed by the residential condo owners.  

However, many of the policies supporting the Davis-Stirling Act do not apply in a commercial context.  Commercial condo owners are not considered to require the same protections as residential owners.  Unlike residential homeowners, owners of commercial condos are presumably professionally advised, well-informed and governed by other provisions of commercial law.  The Davis-Stirling Act recognizes the differences between residential and commercial CIDs by exempting commercial and industrial common interest developments (“Commercial CIDs”) from some of its provisions (See Civil Code Section 1373).  For example, certain provisions of the Davis-Stirling Act related to operating rules, rental restrictions, budget requirements, assessment increase restrictions and disclosure on transfers, do not apply to Commercial CIDs.  Such rules are considered to be unnecessary in a commercial context, and may interfere with commerce and increase the costs of doing business.  

Even though the Davis-Stirling Act exempts Commercial CIDs from some of its provisions, the inclusion of both types of CIDs under the Act has proved confusing for property owners, homeowners associations and their counsel.  It has been unclear whether other provisions of the Davis-Stirling Act apply to Commercial CIDs, especially as the Davis-Stirling Act has been amended over the years.

New Commercial Condo Law

To clarify the law applicable to Commercial CIDs, the California legislature passed Senate Bill 752, which went into effect on January 1, 2014.  SB 752 separated the laws governing residential CIDs from the laws governing Commercial CIDs by establishing the Commercial and Industrial Common Interest Development Act (Civil Code §§6500-6576) (“Commercial Act”).  The Commercial Act provides for the creation and regulation of Commercial CIDs.  A “commercial or industrial common interest development” means a development that is limited to industrial or commercial uses by law or by recorded CC&Rs.  

The Commercial Act mirrors much of the Davis-Stirling Act.  The foundational provisions of the Davis-Stirling Act related to the fundamental character of CID property ownership, governing documents, ownership rights and interests, and assessment collection and enforcement have been retained in the new law.  The exemptions for Commercial CIDs in the Davis-Stirling Act have generally been retained in the new law.  

While there are similarities between the Commercial Act and Davis-Stirling Act, there are key differences.  The Commercial Act omits certain procedural provisions of the Davis-Stirling Act related to open meetings of the owners association, voting and election procedures, record inspection rights, delinquent assessment procedures, managing agent requirements, exclusive use common area requirements, accounting, use of reserve funds, reserve planning and dispute resolution procedures.  Protections for the members of the owners association have been reduced with respect to voting rights and required disclosures.  The new law also omits the entire chapter pertaining to finances in the Davis-Stirling Act, eliminating the requirement for distribution to members of an association budget and other financial disclosures.  The new law has significantly revised provisions from the Davis-Stirling Act pertaining to dispute resolution, and owners of commercial condos do not have a statutory right to request alternative dispute resolution in the event of a dispute under the governing documents, even with respect to actions taken by the board of directors regarding delinquent assessments.

It is important to note that the new Commercial Act only applies to Commercial CIDs.  Therefore, any “mixed-use” CID that includes commercial and residential condos will still be governed by the Davis-Stirling Act.

Special thanks to Stephanie Haughey who assisted with research and drafting of this Update.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.