SB 323 is a disaster for California's residential and mixed-used HOAs. Each and every one of the state's tens of thousands of associations subject to the Davis-Stirling Act must now scramble to update their election rules and adopt new election practices before January 1st or face voided election results and costly legal liability, including attorney's fees and civil penalties of up to $500 per violation.
As if these problems aren't bad enough, SB 323 was signed with just 81 days lead time. 81 days - less than three months - to update election rules (and possibly bylaws and CC&Rs) and comprehensively overhaul election practices. Comically, this period is shorter than the law's mandatory new 105 day election timeline. A grace period would have been helpful, but helpful is clearly not the bill's intent.
SB 323 is fundamentally flawed legislation. Despite the bill's sponsor's claims, associations are not governments, with governmental budgets or staff. They are simple nonprofit structures run by volunteers with a simple goal, the protection and enhancement of equity, affordability, and quiet enjoyment. Imposing complex governmental election standards on working parents, retirees, and other homeowners will not go "a long way toward restoring confidence" in these structures, as the bill's proponents claim, it will break them.
Regardless of the law's flaws, SB 323 will take effect on January 1st. Here is an overview of the bill's main changes to the Davis-Stirling Act:
1. Strict Compliance. SB 323's most significant change is in regards to enforcement actions. Prior to SB 323, if a member sued to challenge election results, courts had discretion as to whether to let the results stand. This typically meant that courts would disregard election law violations unless the challenger could show real harm. Effective January 1st, however, SB 323 will require courts to void elections unless associations can show that their non-compliance did not affect the results.
This burden-shift means that boards, inspectors, and managers must now conduct legally flawless elections or face the real risk of voided election results, attorney's fees, and civil penalties of up to $500 per violation. It also means that SB 323's many flaws and ambiguities must generally be resolved in favor of strict compliance.
There's a real tone deafness here on the part of the Legislature in regards to the reality that HOAs are operated by amateur volunteers. The vast majority of boards I encounter view CID law and its complexities with trepidation, if not fear. Adding to that complexity and imposing draconian penalties will discourage learning, engagement, and confidence and encourage apathy, inaction, and despair. If Sacramento wants better substantive election results, it should focus on better substantive election lawmaking.
2. New Election Rules. SB 323 imposes a laundry-list of new provisions which must be contained in election rules. Associations which do not have stand-alone election rules - or whose rules do not reflect SB 323's new requirements - can have their election results voided and face costly legal liability, even if their election was otherwise legally flawless and SB 323 compliant.
At a minimum, SB 323 will require all associations subject to the Davis-Stirling Act to update their election rules. As discussed below, many communities will also be forced to update their CC&Rs and bylaws as well.
Boards and managers should be mindful that bylaws and election rules are not the same thing. Election rules are stand-alone operating rules - a separate document - that set forth an association's member voting, board composition, free speech, and other political rules.
3. Mandatory Board Elections. SB 323 will require associations to conduct costly secret ballot elections at the expiration of any director's term and at least once every four years. Previously, the law did not expressly provide for regular elections.
4. No More Acclamation. SB 323, in tandem with Senate Bill 754, will expressly prohibit elections by acclamation for all common interest developments with fewer than 6,000 units. This change, in tandem with mandatory board elections, is the legislative equivalent of digging a hole in the ground, filling it with your dues, and lighting it on fire.
5. No Member Voting Qualifications. SB 323 will bar associations from stripping delinquent or otherwise non-compliant members of the right to vote. Now, all members must be permitted to vote, even those who are delinquent or in violation of the governing documents.
6. Revised Candidate Qualifications. SB 323 will establish an entirely new set of mandatory and permissible qualifications for director-candidates. Other qualifications are barred, including blanket good standing, residency, and term limit requirements. Now, certain delinquencies are permissible, as are many criminal convictions and governing document violations. Given the law's current ban on the use of association funds against problem candidates, this change represents a real threat to the integrity of association governance. "Restoring confidence," indeed.
7. New Election Timelines and Notices. SB 323 will extend and complicate association election timelines. Before 2020, a typical board election would require approximately 60-75 days to complete. SB 323 extends that timeline to at least 105 days (I recommend 120), and imposes complex new 90, 60, and 30-day election notice requirements on associations. What was previously a tolerably simple two-month process will now become a four-month nightmare of forms and fiery hoops.
8. New Inspector Requirements. SB 323 will bar associations from appointing any person or entity currently being paid by the association as an inspector, including managers, management companies, attorneys, or CPAs. This change will increase the cost of elections and lead to worse outcomes, as election decisions will either be made by amateur homeowners or third-party inspectors who are unfamiliar with the community.
9. New Association Record Requirements. SB 323 will require associations to create an entirely new class of association records called "association election materials," will add member emails as association records subject to inspection, and will revise the structure of certain secret ballots.
10. New CC&Rs and/or Bylaws. The CC&Rs and bylaws of many communities contain provisions which will be voided by SB 323. With a few limited exceptions, however, provisions contained in CC&Rs and bylaws supersede election rules. Given SB 323's harsh penalties, such communities must amend or even update their CC&Rs, bylaws, or both as well in order to avoid the risk of confusion, conflict, and potential litigation.
Again, this is only a partial list of SB 323's changes. You can read the bill in full here. My SB 323 update page discusses my unique update service designed to help your association operate with confidence in the face of this complex new law.