HOA MANAGER FEES, DISCLOSURES, AND CONFLICTS OF INTEREST

I get email inquiries now and then distrustful of managers and boards so I will do a couple of blogs on new California laws addressing some of these concerns. There are new laws in California on the subject.

As of January 1, 2018, homeowner association managers are required by law to disclose to boards fees they are collecting with regard to providing disclosure packets upon sale of a unit in the HOA or Condo association and whether they have a conflict of interest. The statute does not define what a conflict of interest is, but it appears a lack of transparency on the part of management about what fees the manager receives in this subject area would be. Here’s the gist of the new law, summarized in the bill. You can look up the new laws at www.ca/gov. Navigate to the legislative section and look up AB 690.

The bill summary:

“AB 690, Quirk-Silva. Common interest developments: managers: conflicts of interest.

(1) Existing law requires that a person or firm who will act as a common interest development manager provide specified disclosures to the board of directors of the homeowners association, including whether the prospective manager is certified, holds an active real estate license, and the manager’s name and address.

This bill would require a manager or a common interest development management firm to disclose specified information before entering into a management agreement. The bill would require a disclosure on whether the manager receives a referral fee from 3rd parties for distributing required documents and an affirmative written acknowledgment that specified documents provided to the manager are the property of the association and not the manager.

(2) The Davis-Stirling Common Interest Development Act defines and regulates common interest developments. The act requires a common interest development to be managed by an association. The act requires the association to distribute an annual budget report 30 to 90 days before the end of its fiscal year. Existing law requires the annual budget report to include specified information.

This bill would additionally require the annual budget report to contain specified information relating to charges for requesting copies of certain documents from the association.

The act requires a prospective managing agent of a common interest development to provide a written statement to the board of the association containing specified information concerning the managing agent. The act also requires the association to provide to the owner of a separate interest, upon request, specified documents.

This bill would require that the manager, common interest development management firm, or its contracted agent facilitate the delivery of the documents requested, if this responsibility is required by the management contract. The bill would modify the specified form used to identify the charges for requesting copies of documents held by the association by requiring the form to inform a seller that he or she is not required to purchase all of the documents listed on the form and may purchase some or all of the documents as desired. The bill would also require a prospective manager or prospective management firm of a common interest development when presenting a bid for services to the board to include a disclosure of any conflict of interest, as defined.”

**

You really need to pull the law to get the new form (or you could purchase THE DAVIS STIRLING ACT IN PLAIN ENGLISH from my website which has an appendix with the law at www.californiacondoguru.com).

But here is the part of the Davis Stirling Act which discusses this idea of disclosing fees and avoiding conflicts of interest, and duty/responsibility to fulfill HOA disclosure requirements if contracted to do so.

Section 5375 of the Civil Code is amended to read:

A prospective managing agent of a common interest development shall provide a written statement to the board as soon as practicable, but in no event more than 90 days, before entering into a management agreement which shall contain all of the following information concerning the managing agent:

(d) Disclose any business or company in which the common interest development manager or common interest development management firm has any ownership interests, profit-sharing arrangements, or other monetary incentives provided to the management firm or managing agent.

(e) Whether or not the common interest development manager or common interest development management firm receives a referral fee or other monetary benefit from a third-party provider distributing documents pursuant to Sections 4528 and 4530.

Section 5375.5 is added to the Civil Code, to read:

A common interest development manager or common interest development management firm shall disclose, in writing, any potential conflict of interest when presenting a bid for service to an association’s board of directors. “Conflict of interest,” for purposes of this section, means:

(a) Any referral fee or other monetary benefit that could be derived from a business or company providing products or services to the association.

(b) Any ownership interests or profit-sharing arrangements with service providers recommended to, or used by, the association.

Section 5376 is added to the Civil Code, to read:

The common interest development manager, common interest development management firm, or its contracted third-party agent shall facilitate the delivery of disclosures required pursuant to paragraph (1) of subdivision (a), paragraph (2) of subdivision (b), and subdivision (d), of Section 4530 if the common interest development manager, or common interest development management firm, is contractually responsible for delivering those documents.

 

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