Newsletter, 2024-07

LEGAL UPDATE FOR 2024: NEW STATUTES

A few California statutes that apply to HOA meetings and voting came into effect on January 1, 2024. Also a federal statute, the Corporate Transparency Act, is now in effect, and it adds a new realm of obligations for HOAs. Here is a summary of these new laws. Note! These are just brief summaries. You should consult with an attorney for more details.

State Statutes

Assembly Bill 648. Until this year, Board or membership meetings held entirely by Zoom or other types of teleconference were only allowed in certain emergency situations. AB 648 now allows HOAs to hold meetings entirely by teleconference, as long as:

• The notice of the meeting contains clear technical instructions on how to participate by teleconference, the phone number and email address of a person who can provide technical assistance with the teleconference process both before and during the meeting, a notice that the attendees may participate by telephone along with a phone number to call in, and a reminder that a member may request individual delivery of meeting notices, with instructions on how to do so.
• Every director and member has the same ability to participate in the meeting that would exist if the meeting were held in person.
• Any vote of the directors must be conducted by a roll call vote.

However, meetings to count secret ballots cannot be held entirely by teleconference. There must be a physical location for the meeting.

Assembly Bill 1458. If quorum is not met for a membership meeting where ballots for a director election will be counted, statute now allows the HOA to adjourn the meeting for at least 20 days, and at the subsequent meeting quorum for the membership meeting and the vote will be reduced to 20% of the owners. Also the timeframe for delivering notice of any membership meeting to count ballots on a director election has been changed from at least 10 days to at least 15 days before the meeting. There are also various new requirements for the pre- ballot notice and notice of the membership meeting.

Assembly Bill 1572. “Potable water” is water suitable for human consumption. As of January 1, 2029, HOAs will be prohibited from using potable water to irrigate nonfunctional turf, except to the extent needed to keep trees or other perennial non-turf plants healthy, or to the extent needed due to an immediate health and safety need. If the HOA has more than 5,000 square feet of irrigated common area, then every three years the HOA will need to certify to the State Water Resources Control Board that the property is in compliance. This reporting requirement will start on June 30, 2031.

Assembly Bill 1764. If the HOA has a limit on the number of terms that an owner can serve as a director, then a nominee must be disqualified if he has served that number of terms. Also directors are automatically disqualified once they cease to be a member of the HOA.

Federal Statute

Corporate Transparency Act (“CTA”). The CTA was enacted to combat money laundering and related crimes such as terrorism, and to promote national security. It applies to corporations with under 20 employees and less than $5 million in annual income. This includes HOAs that have been incorporated, but not unincorporated HOAs. It is commonly believed that including HOAs in this reporting was an unintended consequence and there are attempts being made to exclude HOAs from the reporting requirements, but those efforts appear to have stalled. Until something changes, HOAs must comply with this Act.

The CTA requires all incorporated HOAs to report to the federal Financial Crimes Enforcement Network (FinCEN) information about the corporation and its beneficial owners. A beneficial owner is anyone who exercises “substantial control” over the HOA’s business, finances or structure – probably the treasurer and president – and anyone who has a 25% controlling interest in a company. If there are three directors, all three would be a beneficial owner. There can be any number of beneficial owners.

Every incorporated HOA must file an initial report by January 1, 2025 and there are heavy penalties for late filings. This initial report will give information on every beneficial owner of the entity, and the entity itself. Every time the beneficial owners change, the HOA’s report has to be updated.

The website for retrieving the online report that needs to be filled out and for more information, including a handbook with guidelines for compliance, is https://boiefiling.fincen.gov.

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This newsletter gives only a brief summary of the new statutes. For further clarification on their impact on your homeowners association, please contact this office.