Understanding the Differences Between CC&R's & Rule Restrictions

By Karen St. Onge, Esq.

So, the board wants to implement new restrictions to stop some problematic behavior in the community. Where do you start? The process and procedure that you follow will depend on whether the restriction is added to the operating rules or the CC&Rs.

This article aims to assist community managers in understanding some of the differences and similarities between restrictions contained in those two kinds of governing documents so they can effectively assist boards in implementing new restrictions.

THE PURPOSE OF CC&RS AND OPERATING RULES

The CC&Rs concern the real property rights of the separate interests within the common interest development and establish the board’s authority to regulate and restrict those rights. The operating rules expand upon the rights and restrictions set forth in the CC&Rs or the law, such as the DavisStirling Act, by providing more detail and specificity for owners and residents to know what is expected of them as members of the community.

RESTRICTIONS MUST BE REASONABLE

The board’s discussion should begin with whether the proposed restriction is reasonable. The same definition of reasonable applies to restrictions whether they are contained in the CC&Rs or in operating rules. Restrictions contained in both documents are reasonable unless they are:

(1) arbitrary;

(2) they impose burdens on the property that substantially outweigh the restriction’s benefits to the development’s residents; or

(3) they violate a fundamental public policy.

Whether restrictions are reasonable is determined not by reference to facts that are specific to the objecting homeowner but by reference to the development as a whole (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal. 4th 361).

AUTHORITY FOR RESTRICTIONS IN OPERATING RULES

To include a restriction in operating rules, either the law or the CC&Rs must grant the board with the authority to restrict the conduct or use of the subject property. Rulemaking authority derived from the Davis-Stirling Act includes the authority for adopting “operating rules” related to the management and operation of the association or the conduct of the business and affairs of the association (Civil Code Section 4340(a)).

PROCEDURES FOR IMPLEMENTING NEW RESTRICTIONS

The procedures for adding restrictions to the operating rules and CC&Rs differ, but the process begins the same. The process for amending and/or adding to existing CC&Rs and operating rules begins with the board creating drafts with the assistance of legal counsel, other experts and/or management. The board may, but is not required to, poll the membership to get their feedback on the proposed restriction or hold a townhall meeting to discuss the proposed changes.

For both CC&Rs and rules, the board should vote on approving the final version of the document in an open board meeting. It is at that point that the procedures diverge. A proposed rule change only requires board adoption after the requisite comment period but adding a restriction to the CC&Rs needs membership approval through a secret-ballot election.

For operating rules, the association must provide members the text of the proposed rule and a description of the purpose and effect of the proposed rule change. Members must be given at least 28-days General Notice of the proposed rule change to review and provide comments to the board before the proposed rule is adopted by the board at an open board meeting.

The board may also consider comments by members at the meeting before the vote on adoption of the proposed rule (Civil Code Section 4360). Please note, however, that the board is not required to provide notice to implement an emergency rule change, where the rule is required to address an imminent threat to public health or safety, or an imminent risk of substantial economic loss to the association (Civil Code Section 4360).

For CC&Rs, the threshold for approval of members for a proposed amendment is usually contained in a provision of the CC&Rs; this may be a simple majority, or a super-majority of 2/3 or more. The proposed amendment is mailed to members with a secret-ballot at least 30 days before the ballot counting meeting.

The association will also need to comply with election law requirements and procedures and any association election rules for the vote. Although an association could get an amendment to the CC&Rs approved in a little over 30 days, if members fail to return enough ballots, elections often need to be postponed until a quorum of ballots are returned.

However, if there are no complications, the procedure for adding a restriction to the rules or the CC&Rs can take about the same amount of time. The cost of amending the CC&Rs is more than amending rules because amended CC&Rs need to be recorded with the county and the election itself is more costly (Civil Code Section 4270).

The same 15-day deadline applies to providing General Notice to the membership of the approval/ adoption of the new governing document (i.e., 15days after the election meeting or 15-days after the board meeting adopting the rule).

MEMBER OPTIONS FOR OBJECTING TO RESTRICTIONS

If a member objects to a restriction in established CC&Rs or operating rules, one potential recourse is to get elected to the board and attempt to get it changed (or go to court). For recently adopted operating rules, but not recently approved CC&Rs, a special membership vote to veto a rule change can be requested by members owning 5 percent or more of the separate interests.

The objecting members must exercise this right within 30 days after the membership was given General Notice of the adoption of the rule by the board. The special membership vote must then be held within 90 days after receipt of the objecting members’ request (Civil Code Section 4365). The same procedure cannot be used by members to amend CC&Rs.

PROCEDURE FOR ENFORCING THE RESTRICTIONS AND COLLECTING FINES

When restrictions are violated, the procedure for addressing those violations is the same regardless of the restriction being an operating rule or in the CC&Rs. First, an alleged violation must be investigated and substantiated. At a minimum, the member must be given notice of the hearing to determine if a fine or penalty will be imposed, and the member must be given an opportunity to present evidence and be heard, and then given notice of the board’s decision (Civil Code Section 5855).

If the member does not pay the disciplinary fines, the association can go to small claims court. The difference may come when having to prove that the member was given notice of the restriction since CC&Rs are public records, but rules are not. Also, because CC&Rs are approved by the membership and recorded, some small claims judges are more likely to enforce fines imposed for violating CC&Rs rather than operating rules.

To overcome these challenges, the board should identify the provision in the CC&Rs that provides the board with rulemaking authority for the restrictions in the operating rules.

Karen St. Onge, Esq.

Karen St. Onge, Esq., serves as general counsel for homeowner associations. Onge currently practices law out of the Adams Stirling’s Northern California offices and has been in the industry for over 15 years.