Assembly Bill 572, introduced by Assembly Member Matt Haney of San Francisco, would place a cap on assessment increases a condominium homeowners association (HOA) could impose on a deed-restricted affordable unit, subject to certain exceptions. AB 572 would amend California Civil Code 5605, part of the Davis-Stirling Common Interest Development Act, to prohibit an increase of the HOA regular assessment for a deed-restricted affordable unit that is more than 5% greater than the preceding year’s regular assessment, or that is greater than the annual percentage change in cost of living, whichever is larger. The maximum increase for a deed-restricted affordable unit would be 10% greater than the preceding year’s regular assessment. The “percentage change in the cost of living” would be determined using the Consumer Price Index for the region where the project is located. The limitation would not apply to a development where 30% or more of the units are deed-restricted affordable units.
Civil Code Section 5605 already provides that an HOA board of directors may not impose a regular assessment that is more than 20% greater than the regular assessment for the HOA’s preceding fiscal year without the approval of a certain number of the HOA members. The proposed amendment to Section 5605 would extend this existing rule by further limiting such increases as applied to deed-restricted affordable units.
Under current state law, there is no difference between the assessments paid by affordable and market-rate units. Having one group of owners pay more and subsidize another group of owners who receive the same benefits and services is not allowed.
It may be well-intentioned, but AB 572 is somewhat controversial and opposed by some industry groups for a few reasons.
This new law could result in the affordable units paying less than the market-rate units for the same services and benefits. This disparate treatment could breed resentment from the market-rate owners, who were not part of the original approval of the project and imposition of affordable housing requirements, yet could be burdened with the responsibility of paying a disproportionate share of assessments and subsidizing the affordable units in the project. This could be viewed as unfair to the market-rate unit owners.
This new law is also seen by some as designating affordable unit owners as a separate class of homeowners, which could create inequities and sow division among the residents of the community.
There is also concern that in order to avoid any controversy, an HOA might decide to cap all increases in HOA assessments at an artificially low amount in order to keep the assessments the same for all units. This could result in an HOA reducing services and deferring necessary maintenance, and could also result in large special assessments down the road to make up for insufficient HOA funds.
AB 572 is currently processing in the State legislature. We will continue to monitor and report back if the bill passes and becomes law.
Authored by Reuben, Junius & Rose, LLP Partner Jay Drake.
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.
