Utility Services Community Association

We deliver exceptional service to our clients by providing a specialized team of legal and

operations experts that track legislation and case law. We ensure managers are aware of new laws and update our tools and processes to keep your association in compliance. In December we held an education seminar for managers, and are very grateful to Fred Whitney of Whitney Petchul, APC, and Darren Bevan, of Baydaline & Jacobsen LLP—seasoned leaders in community association law—for speaking to our managers about the new statutes and what they mean for California community associations.

Following are some of the most important pieces of legislation and case law that may affect your community in 2025.

2025

Legislation

Updates

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New Statutes

Senate Bill 900 – Common Area Utility Repairs

(Effective January 1, 2025)

This bill imposes new duties upon associations with utilities in the common area. The statute seeks to ensure the swift restoration of failed utility services, which require repair or replacement of utility components pertaining to gas, heat, water, or electrical services. Specifically, unless otherwise provided in an association’s CC&Rs, making owners responsible for these utilities, or unless the failed utility service is repaired by a utility service provider, associations are responsible for any necessary repairs to restore interrupted gas, heat, water, or electrical services. This includes utility services in an association’s common area, even if the utility service extends into an owner’s unit, lot, or the exclusive use common area appurtenant to an owner’s separate interest. If gas, heat, water or electrical services located in the common area and serving the separate interests are interrupted, an association must, within 14 days of the interruption, commence the process to make repairs to restore the services unless the services are maintained by a utility service provider or the CC&Rs state otherwise.

Also:

• Funding repairs. If there are insufficient reserve or other funds to pay for the cost of repair, an association may obtain a loan and levy an emergency assessment to repay the loan without a member vote. The statute expands the definition of emergency assessments to include utilities, and no member vote is required.

• Reduced quorum. Creates an exception for quorum requirements for action by the board. If the board is unable to reach a quorum during the 14-day commencement period, it allows a reduced quorum at the next duly noticed board meeting to the number of directors attending the board meeting, to allow the board to vote to commence the process to make repairs

• State of emergency. Services interrupted during a federal, state, or local state of emergency are not required to be repaired during the state of declared emergency.

• Reserve study. Amends the reserve study requirements to expand the definition of “major components” to include gas, water, and electrical service to the extent the association is required to repair or replace these components .

• Amends. SB 900 amends Sections 4775, 5550 and 5610 of the Civil Code. To learn more about SB 900, visit https://bit.ly/SB900_details fsresidential.com Life, simplified. 2

Assembly Bill 2114 – Balcony Inspections

(This bill was made effective immediately —on July 15, 2024)

• Civil engineers allowed. Adds licensed civil engineers to the list of qualified inspectors to conduct mandatory inspections of exterior elevated elements, including balconies and other similar components. Previously only licensed structural engineers or architects could conduct inspections and provide reports.

• Only applies to condominiums. Once every nine years, the board of an association of a condominium project shall cause a reasonably competent and diligent visual inspection to be conducted by a licensed structural or civil engineer or architect of a random and statistically significant sample of exterior elevated elements for which the association has maintenance or repair responsibility.

• Construction material. Only applies to structures that are “supported in whole or in substantial part by wood or wood-based products.”

• Amends. AB 2114 amends Section 5551 of the Civil Code. To learn more about AB 2114, visit https://bit.ly/AB2114_details Corporate Transparency Act

• Federal law. On September 29, 2022, the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) was implemented, and the Beneficial Ownership Information Report (“BOIR”) provisions of the Corporate Transparency Act (“CTA”) are now in effect. The CTA is part of the Anti-Money Laundering Act of 2020, establishing the CTA and BOIR requirements for most corporations, including community associations, with few exceptions.

• Intent. To prevent money laundering, tax fraud, and funding of terrorism. Directors are beneficial owners because they exercise substantial control over the association as defined in federal law.

• Requires. Associations and directors are required to file BOIRs with FinCEN by the deadline.

• Associations. Associations provide the entity’s full name, state of incorporation, address within the community, and taxpayer ID number.

• Directors. Directors provide their full name, birth date, street address, and copy of passport, driver’s license, or state identification. Reporting is required when directors join the board or if there are changes to information provided with BOIRs within 30 days of a change.

• Deadline. Compliance deadline is Tuesday, December 31, 2024.

• Penalties. Fines of $591 per day for failing to report by December 31, 2024, up to a maximum of $10,000, and potentially criminal charges of up to two years in prison for the worst offenders.

• Amends. Title 31, Section 5336 of the United States Code (31 USC 5336). fsresidential.com Life, simplified. 3

Important Update to the Corporate Transparency Act (CTA) On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction temporarily halting the enforcement of the CTA and suspending the reporting requirements, which were to be effective on January 1, 2025, which includes the submission of the BOIR to FinCEN.

Specifically, the Court stated: “… the CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.” As of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN. Oral argument on this injunction is currently set for March 25, 2025. Please be advised, this is NOT a permanent injunction and there will be further developments in this lawsuit. This means an appellate court may overturn the preliminary injunction (again). As such, we will continue to monitor CTA developments and we are prepared to notify you if you need to resume compliance activities and meet any reporting requirements if the injunction is lifted as this lawsuit progresses.

What does this mean for you as board members?

• You may pause on filing BOI reports with FinCEN, at this time.

• If you have already filed, you have fulfilled your compliance obligation if the injunction is overturned, and the CTA is reinstated.

• FinCEN Report has notified us it does not have any plans to remove any of the data from their system, at this time, due to the chance the injunction will be overturned. There is no cost for FinCEN Report to house the data.

• If you have not filed, but are subject to the CTA, it is our recommendation you have the required information ready to immediately file in case the injunction is overturned and the timeline for filing is short.

• If the injunction is overturned, FinCEN Report will assume its role in helping you comply with the CTA.

As always, please consult with your counsel and/or tax advisor when determining whether you should take action or refrain from taking action. FirstService Residential remains committed to monitoring these developments closely and will keep you updated as new information becomes available. To learn more about the Corporate Transparency Act, visit https://fincen.gov/boi fsresidential.com Life, simplified. 4

Assembly Bill 2159 – Electronic Voting

(Effective January 1, 2025)

Introduction to Electronic Voting

1. Not mandatory. Electronic voting is not mandatory

No immediate changes are necessary

Any rule change introducing electronic voting must be adopted 90 days prior to the election 2. Preparation. Before electronic voting can be implemented:

Management must be able to track voting preferences and the emails that will be used for voting

Inspectors of Election must have a system that complies with all the new legal requirements 3. “Hybrid” voting systems. Paper ballots must still be used:

For member votes on assessment increases (Civil Code §5605)

Where members opt-out or give no valid email

4. Not yet fully developed.

While Sacramento provided a means to accommodate electronic voting, the mechanisms for implementing it aren’t yet fully developed

Inspectors of Election are busy developing the software they’ll need Why Use Electronic Voting?

• Cost savings?

Inspectors of Election will likely charge a flat set up fee—there may be no cost savings, especially at the outset

Only available to professional inspectors who’ll invest in technology to accommodate the new statute’s requirements

• Increased voter participation

Easier to vote

Members may check email more regularly than USPS mail

• Improved confidence in the voting system

Basics of Electronic Voting

• Generally, an electronic voting system utilizes a website that members can log into to cast votes. Links to vote electronically are likely to be delivered to members in one of the following ways:

1. Mailer with link and log-in information

2. Email (if authorized) with a link

3. Website with link or QR code

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• Electronic voting systems can be of two potential types: 1. Opt-out system

In this case, the board chooses electronic voting as the default. Members are given the right to opt out and receive a paper ballot.

2. Opt-in system

In this case, the board chooses paper ballots as the default. Members are given the right to opt in to receive ballots electronically. The board of directors chooses an opt-out or an opt-in system before the election rules are amended.

Required Rule Changes (§5105)

• Rules can authorize use of electronic voting for any given election (except for assessment increases) at board discretion

• Electronic election rules must contain all the following:

Members may update their preferred voting method no later than 90-days before the election

Require a member who votes by electronic ballot to provide a valid email address

Require the association to maintain a voting list of member voting preferences

Association must also include information on the procedures to opt-in or to opt-out in its annual statement (per §5310)

A rule prohibiting nominations from the floor

Electronic and written ballots must contain the same voting issues

For an opt-out system requiring written ballots be mailed to those that opt-out or for whom the HOA does not have an email

For an opt-in system a rule specifying that electronic ballots shall only be sent to those opting in

Process Changes (§5115)

• The election process must include all the following: 1. Election notice and pre-ballot notice must describe how a member can vote electronically 2. Notice and ballot may be emailed only if member approves 3. Electronic ballots are irrevocable once cast

4. Electronic ballot counts towards quorum

5. No person may review any tally sheet before the count, including expressly any member or management (§5120(c))

6. Digital tally sheet shall be in custody of inspector and be made available as “association election materials” (§5200(c))

7. Pre-Election Notice required (only for opt-out systems) fsresidential.com Life, simplified. 6

Management’s Role

• Management must track:

1. Each member’s preferred voting method and set the association’s default system (opt-in or opt-out) when the election rules are adopted

2. Emails that will be used to vote

a. Can be the emails presently tracked under Civil Code 4041 (avoids developing another tracking system)

b. Can Inspector of Election allow temporary emails? This isn’t yet clear. 3. Management must disclose how to opt-out or opt-in in the annual mailer:

“In the event that your Association has authorized electronic voting for any particular vote, you may log into the resident portal to update your membership preferences to either opt in or opt out of digital voting.”

The Pre-Election Notice

• Only required for an opt-out voting system

• Must be sent to every member via individual delivery

First class mail

Email with consent of member (§4040)

• Must be sent at least 30 days before the deadline for a member to change their voting preference (which is not later than 90 days prior to the election). The notice then, must be sent, at the latest, 120 days before the election.

• The pre-election notice must contain all of the following: 1. The member’s preferred voting method

2. The email address(es) of the member that will be used for voting 3. An explanation that the member is required to opt-out of voting by electronic secret ballot before the deadline

• Sample language: “You may change your preferred voting method to either vote by “electronic ballot” or by “written ballot” and/or update your email address(es) used for voting by going to the resident portal, sending in a written change of information form, calling the following number, etc. …]. The deadline to opt out of electronic voting and/or to change your preferred voting method and primary email is 90 days prior to the Annual Election, which is set for [insert date].”

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The Inspector’s Role

• If the inspector of elections conducts an election by electronic secret ballot pursuant to Section 5105, each member voting by electronic secret ballot shall be provided with all the following:

1. A method to authenticate the member’s identity

2. A method to transmit an electronic secret ballot to the internet-based voting system that ensures the secrecy and integrity of each ballot

3. A method to confirm that the member’s electronic device can successfully communicate with the internet-based voting system at least 30 days before the voting deadline 4. Transmit a receipt from the internet-based voting system to each member who casts an electronic secret ballot

5. Permanently separate any authenticating or identifying information from the electronic secret ballot, rendering it impossible to connect an election ballot to a specific member Reconvened Meetings (§5115(b))

• Pre-ballot notice requirements:

1. General notice (posting) of the date and time when ballots are due 2. Physical address where ballots are to be returned 3. Location of the meeting where ballots will be counted 4. List of candidates that will appear on the ballot 5. Individual notice – if requested by a member (§4040)

• New law requires a statement that: “The association may call a reconvened meeting to be held at least 20 days after a scheduled election if the required quorum is not reached, at which time the quorum of the membership to elect directors will be 20 percent of the association’s members, voting in person, by proxy, or by secret ballot.” To learn more about AB 2159, visit https://bit.ly/AB2159_details Operational Takeaways – AB 2159

1. FirstService Residential will be ready to assist boards choosing to adopt electronic voting.

2. We’ll also provide continued updates as we learn how inspectors of election have prepared to provide electronic voting services in compliance with the new statute. fsresidential.com Life, simplified. 8

The information in this communication has been prepared for general informational purposes only and should not be construed as legal advice on any subject matter or to answer specific legal questions or problems you may have. While we try to ensure the accuracy of the information, we cannot guarantee that all the information is accurate. You should be aware the law changes and varies by circumstance. Therefore, information on a given law or legal issue may not be current or apply to your situation. You should not act or refrain from acting upon this information without seeking the advice of an attorney.

Viewing and/or using any of this information does not create an attorney-client relationship.

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