Article 5 -
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5.1 Formation of the Association. The Association is a nonprofit mutual benefit corporation formed under the laws of the State of California. The Association shall commence operations no later than the date that assessments commence. Pending the commencement of the Association's operations, Declarant shall perform the duties and shall have the rights of the Association as described herein.
5.2 Governing Body. The governing body of the Association shall be the Board. It shall be the responsibility of the Board to ensure that the Association exercises it rights and performs its duties as described within the Declaration, the Articles, the Bylaws and any amendments thereto.
5.3 Membership. Each Owner of a title interest in a Lot automatically shall be a Member of the Association. If there is more than one title Owner of a Lot, each Owner shall be a Member. The holder of a security interest in a Lot shall not be a Member of the Association except and until that holder obtains both the legal and equitable interest in the Lot. If any Owner executes an installment contract of sale for the sale of that Owner's Lot, the purchaser shall become the Member if the contract is recorded in the public records and if the Association is notified in writing of the contract; and the Owner no longer shall be a member. If the purchaser's rights are terminated under the contract without transfer of title to the purchaser, the Board, upon receipt of satisfactory evidence of the termination of the purchaser's rights, shall reinstate the Owner as the Member; and the purchaser shall no longer be a Member.
5.4 Membership Classes and Voting Rights. The Association shall have the following two classes of voting memberships:
(i) Class A. Class A Owners are all Owners except the Declarant. Class A Owners shall be entitled to one vote for each Lot in which he or she owns an interest. If more than one Owner owns an interest in a Lot, only one vote may be cast with respect to that Lot.
(ii) Class B. The Class B Owner shall be the Declarant, who shall be entitled to three votes for each Lot owned by the Declarant. Class B membership shall cease and be irreversibly converted to Class A on the first to occur of the following:
(a) the second anniversary of the first conveyance of a Lot in the most recent phase of the Development; or
(b) the fourth anniversary of the first conveyance of a Lot in the first phase of the Development.
As long as two classes of voting membership exist, any action by the Association that requires approval by the Owners shall require approval by the designated percentage of voting power in each class,
5.5 Joint Ownership Votes. The vote that is attributed to each Lot may not be cast on a fractional basis. If the Lot has more than one Owner and the Owners are unable to agree as to how the vote shall be cast, the vote shall be forfeited on the matter in question. Any vote cast by an Owner for any Lot is presumed conclusively to be the vote cast by all the Owners of that Lot. If more than one Owner casts a vote attributed to a Lot on any matter on which only one vote could be cast for that Lot, the votes cast by such Owners shall be counted as one vote if the votes are the same; if the votes are different, the vote cast by such Owners shall not be counted and shall be forfeited.
5.6 Powers of the Association. The Association shall have all the powers of a nonprofit mutual benefit corporation organized under the general nonprofit mutual benefit corporation laws of California, subject only to such limitations on the exercise of these powers as are set forth in the Articles, Bylaws and this Declaration. The Association shall have the power to do any lawful thing that may be authorized, required or permitted to be done by the Association under this Declaration, the Articles and the Bylaws and to do and perform any act that may be necessary or proper for or incidental to the exercise of any of the express powers of the Association, including without limitation, each of the following:
(i) The Board shall establish, fix and levy assessments against the Lots and collect and enforce payment of such assessments in accordance with the provisions of Article 6 of this Declaration.
(ii) The Board may adopt, amend and repeal Rules as it considers appropriate. The Rules shall regulate the use and enjoyment of the Common Area and such other matters as are authorized herein. A copy of the Rules as adopted, amended or appealed shall be mailed or otherwise delivered to each Owner; and a copy shall be posted in a conspicuous place within the Development if an appropriate space is available for such posting. If any provision of this Declaration, the Articles or the Bylaws is inconsistent with or materially alters any Rules, the Declaration, the Articles or the Bylaws shall control to the extent of any such inconsistency.
Any Rules adopted by the Board shall apply to all Owners or occupants in a uniform and nondiscriminatory manner. The Board may adopt a Rule as the result of an act or omission of any Owner or occupant or their family members or guests or a Rule that does not directly affect all Owners or occupants in the same manner as long as the Rule applies to all Owners or occupants.
(iii) The Board may borrow money to meet any anticipated or unanticipated cost of the Association and, subject to the provisions of Section 5.12(v), may mortgage, encumber or pledge Association assets (including but not limited to, assessments) as security for such borrowing.
(iv) In addition to any other enforcement rights described in this Declaration and the Bylaws or as may be authorized as law and subject to any restrictions on the Association's enforcement rights, including any due process requirements imposed by this Declaration, the Bylaws or by law, the Board may take any of the following actions against any Person whose act or failure to act violates or threatens to violate any provisions of this Declaration, the Bylaws or Rules: (a) impose monetary penalties, including late charges and interest; (b) suspend voting rights in the Association; (c) commence any legal or equitable action for damages, injunctive relief or both; and (d) suspend use privileges for any recreational facilities within the Development. Subject to the provisions of Section 12.10, the determination of whether to impose any of the foregoing sanctions shall be within the sole discretion of the Board. Any legal action may be brought in the name of the Association on its own behalf and on behalf of any Owner who consents; and except as otherwise provided herein, the prevailing party in such action shall be entitled to recover costs and reasonable attorneys' fee. The Board, in its sole discretion, may resolve or settle any dispute, including any legal action in which the Association is a party, under such terms and conditions as it considers appropriate.
If the Board adopts a policy imposing monetary penalties, the Board shall adopt and distribute to each Member, by personal delivery or first-class mail, a schedule of the monetary penalties that may be assessed. The Board may change the schedule from time to time and shall distribute a notice of such changes to the Members in the same manner as the schedule of penalties. If requested by a Member being disciplined, the Board shall conduct the disciplinary proceeding in executive session. In such session, the Member, and, if applicable, the Member's counsel, and the Association's counsel shall be entitled to attend. In addition, the Board may interview witnesses and other appropriate parties to the disciplinary proceeding in executive session. The provisions of this paragraph are intended to comply with the requirements of Civil Code section 1363(g) in effect as of the date this Declaration was recorded in the county records. If the provisions of section 1363(g) are amended or repealed in any manner, this paragraph automatically shall be amended or repealed in the same manner. Civil Code section 1363(g) may have been amended by the State Legislature since the Declaration was recorded, and the Board should confirm the current statutory requirements.
Under no circumstances may the Association cause a forfeiture or abridgement of an Owner's right to the full use and enjoyment of the Owner's Lot on account of the failure of the Owner to comply with the provisions of the Declaration, Articles, Bylaws or Rules, except by judgment of a court or decision of an arbitrator or on account of a foreclosure or sale under power of sale for failure of the Owner to pay assessments duly levied by the Association.
Before the Board imposes any monetary penalties (late fees and interest on delinquent assessments are not considered penalties subject to the due process requirements) or suspension of membership rights or Common Area use privileges against any Member for failure to comply with the Declaration, these Bylaws or the Rules, the Board must act in good faith and satisfy each of the following due process requirements:
(a) the Member must be given 15 days' prior notice of the discipline to be imposed and the reasons for the imposition of the discipline. Notice may be given by any method reasonably calculated to give actual notice. If the notice is given by mail, it must be sent by first-class mail or registered mail to the last address of the Member as shown on the Association's records; and
(b) the Member must be given an opportunity to be heard, orally or in writing, by the Board not less than five days before the effective date of the imposition of the discipline. The Member shall have the opportunity to present witness on the Member's behalf and to cross-examine any witnesses who may testify against the Member.
(v) Except as may be limited by the Bylaws, the Board may delegate any of the Association's powers and duties to its employees, committees or agents, including a professional management agent.
5.7 Duties of the Association. In addition to the duties described in the Articles or Bylaws, or elsewhere in this Declaration, the Association shall have the duty to manage the Common Area, perform the maintenance as described in Section 4.3, prepare, periodically update, and comply with the maintenance and inspection guidelines described in Section 4.4, prepare and distribute financial statements, reports and copies of Governing Documents as described in Section 5.10, enforce bonded obligations as described in Section 5.11, levy and collect assessments as described in Article 6, prepare when required the reserve studies described in Section 6.3 and annually review and implement adjustments as required, and procure and maintain the insurance as described in Article 8. The Association shall perform such other acts as may be reasonably necessary to exercise its powers to perform its duties under any of the provisions of this Declaration, the Articles, Bylaws, Rules or Board resolutions.
5.8 Taxes and Assessments. The Association shall pay all real and personal property taxes and assessments and all other taxes levied against the Association, the Common Area or the personal property owned by the Association. Such taxes and assessments may be contested or compromised by the Association, provided that they are paid or that are bond insuring payment is posted before the sale or the disposition of any Property to satisfy the payment of such taxes.
5.9 Utility Service to the Common Area. The Association shall acquire, provide and pay for water, sewer, garbage disposal, refuse and rubbish collection, electrical, telephone, gas and other necessary utility services for the Common Area and any recreational facilities.
5.10 Reporting Requirements. The Association shall prepare and distribute the following:
(i) a pro forma operating budget for each fiscal year shall be distributed not less than 45 days nor more than 60 days before the beginning of the fiscal year consisting of at least the following:
(a) estimated revenue and expenses on an accrual basis;
(b) a summary of the Association's reserves based on the most recent reserves review or study conducted pursuant to Section 6.3, which shall be printed in bold type and shall include the following:
(1) the current estimate replacement cost, estimated remaining life and estimated useful life of each major component which the Association is obligated to maintain (collectively the "Major Components"):
(2) as of the end of the fiscal year for which the study was prepared;
a. the current estimate of cash reserves necessary to repair, replace, restore or maintain the Major Components; and
b. the current amount of accumulated cash reserves actually set aside to repair, replace, restore or maintain the Major Components; and
(3) the percentage that the amount in subsection (2)b is to the amount in subsection (2)a;
(c) a statement as to whether the Board has determined or anticipates that the levy of one or more special assessments will be required to repair, replace or restore any Major Component or to provide adequate reserves therefor;
(d) a general statement addressing the procedures used for the calculation and establishment of those reserves to defray the future repair, replacement or additions to the Major Components; and
(e) a statement describing the Members' rights to obtain copies of the minutes of meetings of the Board of Directors, including a description of how and where these minutes may be obtained.
In lieu of the distribution of the pro forma operating budget, the Board may elect to distribute a summary of the budget to all of its Members with a written notice in at least 10 -point bold type on the front page of the summary that the budget is available at the Association's business office or another suitable location within the boundaries of the Development and that copies will be provided on request and at the expense of the Association. If any Member requests a copy of the pro forma operating budget to be mailed to the Member, the Association shall provide the copy to the Member by first-class United States mail at the expense of the Association, which copy shall be mailed within five days of the receipt of the request;
(ii) a balance sheet rendered as of an accounting date that is the last day of the month closest in time to six months from the date of closing of the first sale of a Lot (the "Accounting Date") and an operating statement for the period commencing with the date of the closing of the first sale and ending on the Accounting Date. The operating statement shall include a schedule of assessments, received or receivable, identified by the Lot number and the name of the Owner assessed. Copies of the balance sheet and operating statement shall be distributed to each Owner and any Mortgagee who has requested a copy within 60 days after the Accounting Date;
(iii) an annual report consisting of a balance sheet rendered as of the last day of the fiscal year, an operating statement for the fiscal year, and a statement of change in its financial position for the fiscal year. A copy of the annual report shall be distributed to each Owner and any Mortgagee that has requested a copy within 120 days after the close of the fiscal year. In any fiscal year in which the gross income of the Association exceeds $75,000, a copy of the review of the annual report prepared a licensee of the California State Board of Accountancy in accordance with generally-accepted accounting principles shall be distributed with the annual report. If the annual report is not reviewed by an independent accountant, the reports shall be accompanied by the certificate of an authorized officer of the Association that the report was prepared from the books and records of the Association without independent audit or review;
(iv) a statement of the Association's policies and practices in enforcing its remedies against Owners for delinquent regular or special assessments, including the recording and foreclosing of liens against a delinquent Owner's Lot. A copy of this statement shall be distributed to each Owner and any Mortgagee who has requested a copy within 60 days prior to the beginning of each fiscal year;
(v) copies of this Declaration, the Articles, Bylaws, Rules, and a statement regarding delinquent assessments as described in Section 6.12 shall be provided any Owner within ten days of the mailing or delivery of a written request. The Board may impose a fee to provide these materials but not to exceed the Association's reasonable costs in preparing and reproducing the material; and
(vi) a summary of the provisions of Civil Code section 1354 which specifically references the section and includes the following:
Failure by any member of the Association to comply with the pre-filing requirements of section 1354 of the
Civil Code may result in the loss of your rights to sue the Association or another member of the Association regarding
enforcement of the governing documents.
The summary shall be provided either at the time the pro forma budget described in Section 5.10(i) is distributed or in the manner set forth in Corporations Code section 5016.
(vii) a summary of the Association's general liability policy that states all of the following:
(a) name of the insurer;
(b) the policy limits of the insurance;
(c) whether an insurance agent, as defined in section 1621 of the Insurance Code, an insurance broker, as defined in Section 1623 of the Insurance Code, or an agent of an insurance agent or insurance broker has assisted the Association in the development of general liability policy limits and whether the recommendations of the insurance agent or insurance broker were followed;
(d) the insurance deductibles;
(e) the person or entity that is responsible for paying the insurance deductible in the event of a loss; and
(f) whether or not the insurance coverage extends to the real property improvements to the separate interests.
(viii) a summary of the Association's earthquake and flood insurance policy, if any, that states all of the following:
(a) the name of the insurer;
(b) the policy limits of the insurance;
(c) the insurance deductible; and
(d) the person or entity is responsible for paying the insurance deductible in the event of a loss.
(ix) a summary of the liability policy for the directors and officers of the Association that lists all of the following:
(a) name of the insurer; and
(b) the policy limits of the insurance.
The Association shall, as soon as reasonably practical, notify its Members by first-class mail if any of the policies have been cancelled and not immediately replaced. If the Association renews any of the policies described in Sections 5.10 (vii), (viii), and (ix) or a new policy is issued to replace an insurance policy of the Association, and where there is no lapse in coverage, the Association shall notify its Members of the fact in the next available meeting to all Members pursuant to Corporations Code section 5016. To the extent that the information to be disclosed pursuant to Sections 5.10 (vii), (viii), and (ix) is specified in the insurance policy declaration page, the Association may meet the requirements of those subdivisions by making copies of that page and distributing it to all its Members.
The provisions of this Section 5.10 are intended to comply with the requirements of Civil Code sections 1354(i), 1363.05(e) and 1365 in effect as of the date this Declaration was recorded in the county records. If these Civil Code sections are amended or repealed in any manner, the provisions of this Section 5.10 shall be amended or repealed in the same manner. Civil Code sections 1354(i), 1363.05(e) and 1365 may have been amended by the State Legislature since the date this Declaration was recorded, and the Board should confirm the current statutory requirements.
5.11 Enforcement of Bonded Obligations. If the Association is the obligee under a bond or other arrangement ("Bond") to secure performance of the commitment of the Declarant or a successor or assign to complete the Common Area Improvements not completed at the time the California Commissioner of Real Estate issued a final subdivision report, for the latest phase of the Development, the Board will consider a vote on the question of action by the Association to enforce the obligations under the Bond with respect to any Improvement for which a notice of completion has not been filed by the later of: (i) 60 days after the completion date specified for that Improvement in the "planned construction statement" appended to the Bond; or (ii) 30 days after the expiration of any written extension given by the Association. If the Board fails to consider a vote on the action to enforce the obligations under the Bond, then on receipt of a petition signed by Owners representing not less than 5% of the total voting power of the Association, the Board shall call a special meeting of Owners for the purpose of voting to override the decision of the Board not to initiate action or to compel the Board to take action to enforce the obligations under the Bond. The Board shall given written notice of the meeting to all Owners entitled to vote in the manner provided in this Declaration or in the Bylaws for notices of special meetings of Owners. The meeting shall be held not less than 35 days nor more than 45 days after receipt of the petition. At the meeting, the vote in person or by proxy by a majority of the Owners entitled to vote (other than Declarant) in favor of taking action to enforce the obligations under the bond shall be considered the decision of the Association; and the Board shall implement this decision by initiating and pursuing appropriate action in the name of the Association.
Upon satisfaction of the Declarant's obligation to complete the Common Area Improvements, the Board shall acknowledge in writing that it approves the release of the bond and shall execute any other documents or instruments as may be necessary or advisable to effect the release of the Bond. The Board shall not condition its approval to release the Bond on the satisfaction of any condition other than the completion of the Common Area Improvements as described in the "planned construction statement". Any dispute between the Declarant and the Association regarding the completion of the Common Area shall be resolved in accordance with the procedures of Section 12.17.
5.12 Limitations on Authority of the Board. The Board shall not take any of the following actions except with the consent, by vote at a meeting of the Association or by written ballot without a meeting pursuant to Corporations Code section 7513 or any successive statute thereto, of a simple majority of the Members other than Declarant constituting a quorum of more than 50% of the voting power of the Association residing in Members other than the Declarant:
(i) incur aggregate expenditures for capital Improvements to the Common Area in any fiscal year in excess of 5% of the budgeted gross expenses of the Association for that fiscal year;
(ii) sell during any fiscal year property of the Association having an aggregate fair market value greater than 5% of the budgeted gross expenses of the Association for that fiscal year;
(iii) pay compensation to members of the Board or to officers of the Association for services performed in the conduct of the Association's business, provided that the Board may reimburse a member or officer for expenses incurred in carrying on the business of the Association;
(iv) enter into a contract with a third Person to furnish goods or services for the Common Area or the Association for a term longer than one year with the following exception:
(a) a management contract, the terms of which have been approved by the Federal Housing Administration or Veterans Administration;
(b) a contract with a public utility company if the rates charged for the materials or services are regulated by the Public Utilities Commission, provided the term does not exceed the shortest term for which the supplier will contract at the regulated rate;
(c) prepaid casualty or liability insurance policies not to exceed three years' duration, provided the policy permits for short rate cancellation by the insured;
(d) lease agreements for laundry room fixtures and equipment not to exceed five years' duration, provided the Declarant does not have a direct or indirect ownership interest of 10% or more in any lessor under such agreements;
(e) agreements for cable television services and equipment or satellite dish television services and equipment not exceeding five years in duration, provided the supplier is not an entity in which the Declarant has a direct or indirect ownership in interest of 10% or more;
(f) agreements for sale or lease of burglary alarm and fire alarm equipment, installation and services not exceeding five years' duration, provided that the supplier or suppliers are not entities in which the Declarant has a direct or indirect ownership interest of 10% or more; and
(g) a contract for a term not to exceed three years that is terminable by the Association after no longer than one year without cause, penalty or other obligation upon 90 days written notice of termination to the other party; or
(v) borrow money secured by any Association assets as authorized under Section 5.6(iii).
5.13 Notice of Significant Legal Proceedings. Notwithstanding anything herein to the contrary, the Board shall not institute any significant legal proceeding, including any arbitration or judicial reference proceeding, against any Person without providing the Members of the Association with at least 30 days' prior written notice of the Association's intention to institute legal proceedings. The notice shall describe the purpose of the proceeding, the parties to the proceeding, the anticipated cost to the Association (including attorneys' fees) in processing the proceeding, the source of funds to process the proceedings (reserves or special or regular assessments), and suggested information that should be disclosed to third parties, such as prospective purchasers and lenders, while the proceeding is being prosecuted. For purposes herein, "significant legal proceeding" shall mean any legal proceeding in which it reasonably could be anticipated that any of the following events could occur:
(i) the levy of a special assessment to fund all or any portion of the proceeding;
(ii) the expenditure of funds from the Association's reserves in connection with proceeding in an amount in excess of 5% of the then current reserves;
(iii) the amount of the claim is in excess of $25,000; or
(iv) the action could have a material adverse effect on the ability to sell and/or refinance the Lots within the Development during the period the proceeding is being prosecuted.
If the proposed legal proceeding is against the Declarant or other developer for alleged damage to the Common Area, alleged damage to the separate interests that the Association is obligated to maintain or repair, or alleged damage to the separate interests that arises out of, or is integrally related to, damage to the Common Area or separate interests that the Association is obligated to maintain or repair, the notice also shall specify each of the following (unless not required by reason of Civil Code section 1375(g)(1)(E) or 1375(g)(2)(D)) as amended from time to time:
(v) that a meeting will take place to discuss problems that may lead to the filing of a civil action and the time and place of the meeting; and
(vi) the options, including civil actions that are available to address the problems.
Notwithstanding the foregoing, the notice shall not be required to commence and pursue any action to collect delinquent assessments as described in Section 6.10 or to enforce any Common Area completion bond as described in Section 5.11. Furthermore, if the Board in good faith determines that there is insufficient time to provide prior notice to the Members as required herein prior to the expiration of any applicable statute of limitations or prior to the loss of any significant right of the Association, the Board may take the necessary steps to commence the proceeding to preserve the rights of the Association, provided that as soon as is reasonably practical thereafter, and not later than 30 days following the commencement of the proceeding, the Board shall provide the Members with notice as required herein.
