Recessions have forced our clients to search for ways of reducing costs. Some are obvious, like putting off major repairs, while others are more subtle, like using technology to save money. An example of the latter might be to cut down on the amount of photocopying and stamps used to send notices, disclosures and communications required by the Davis-Stirling Common Interest Development Act (Act).
In many ways, the Act impedes cost reduction and efficiency by mandating the use of first class mail or personal service (or, in the case of board meetings, posted notice) when the use of email, fax and website posts would be less expensive and as or more effective. On the other hand, the Act does provide many opportunities to use faxes, emails and websites (electronic communications or e-com) for communicating with members of California homeowner associations.
This article is based on the following premise: that e-com can always be used as a supplementary method of communicating with association members and that, in many cases and provided proper consents are obtained, e-com may be the primary source of communication between an association and its members.
Federal and state laws contained in the E-Sign Act and the California Corporations Code generally regulate electronic communications. The laws are intended to facilitate modern commerce, which explains why their focus is on verifying that the parties to a communication or transaction have each formally consented to use electronic communications in lieu of original signatures or mail. There are two basic requirements: that the users consent to electronic communication and that the law does not otherwise prohibit its use.
The Act requires an association to annually provide more than fifty (50) notices and disclosures to its members. In some cases, these must be provided by first class mail, personal delivery or posting; in two situations (concerning the adoption and repeal of rules under Civil Code sections 4360 and 4365) electronic communication is specifically permitted; in all others, the Act does not prohibit the use of electronic communications. The basic rules are these: electronic communication may serve as the sole method of communication so long as a member consents unless a statute requires the communication to be mailed, posted or hand served. Electronic communication can always be used as a secondary (back up) form of communication regardless of statutory requirements or member consent.
The key statutes are Civil Code sections 4040 and 4045 that define the five acceptable methods of communication (personal delivery, mail (including billing statements), email and fax, publication in a membership periodical, and via television broadcasting). It permits electronic communications subject to member consent and other laws that might require notice by mail, personal service or posting.
Consent to e-com has these elements: the association is given the right to communicate to a specific email/fax number shown on its records, and/or to a website provided notice of a new posting is sent to the owner; the member must consent and not have revoked the consent to e-com; the communication must create a record that can be retained, retrieved and reviewed; the association must be able to reasonably identify that someone sending a communication to a message board is in fact the member; and that E-Sign law verification requirements must also be met. Generally, these require advising the member that their consent can be limited or withdrawn and that hard copies of all communications can be obtained and the procedures relevant to consent and obtaining copies.
Despite the technical requirements of the E-Sign Act and the Corporations Code, it is tempting to wonder whether an owner who uses email to contact an association, or who responds to an email, has consented to e-com. In some cases, depending on the nature, number and timing of communications, consent can lawfully be inferred. But, informal consent will probably not be adequate to establish that an association has carried out its statutory notice and disclosure obligations unless the proper consents are expressly obtained. Concern with the form of consent will be particularly important in situations likely to escalate into litigation. The issue of proper consent should be especially important to managers who are often the official custodian of all association records.
Regardless of the law, an association cannot use e-com if doing so is prohibited by its governing documents. The best practice is to adopt amendments that specifically authorize the use of e-com and its implementation. Specific authorization for e-com will help a board later demonstrate compliance with statutory disclosure and other notice obligations.
With the aid of counsel, the board should identify those types of communications that can and should be made electronically based on legal requirements and the needs of a particular community. E-com could be used for distribution of the budget, reserve study summary and financial statement, notice of membership meetings, distribution of minutes, voting (for matters not subject to the secret ballot law) the architectural control process, escrow demands, disciplinary hearings, election results and insurance coverage and routine notices concerning maintenance requests and use of common areas. E-com could entail use of emails alone or emails and letters coupled with website postings.
In addition to these considerations, the board and counsel will want to discuss issues relating to privacy, currency of information, tracking of consents and withdrawl of consents, contacts with new owners, agents and other aspects of e-com.
We are in a transition from use of hard copy mail to electronic transmission and retention of data. Members already demand contact via email and directors require their managing agents to preserve data in PDF of spreadsheet formats for easy transmission, reading, comparisons and modification. In some ways, the Davis-Stirling Common Interest Development Act has not caught up in that it still requires that posting (for board meetings) and first class mail be used as the primary communication methods; this will change and in the meanwhile, boards can utilize e-com to cut costs and speed communications. The plan to do so should be done based on the nature of the community, the members' expectations, the ability to maintain a good communications network, including a current website, and the willingness to invest in monitoring and keeping the e-com tools current.
Once primarily an economic problem, hidden damage has become a much more severe problema matter of life and death.
California COVID-19 restrictions have been lifted, let us help guide your Board as you weigh your options and move forward.
Effective in 2020 and 2021, Davis-Stirling CID Act Amendments affecting association operations.
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