When we first reported on SB 721, California’s balcony bill requiring inspection of Exterior Elevated Elements (EEEs), the draft included condos and other “common interest development” buildings. That provision was removed, however, in an amendment before it was signed into law.
Signed into law on August 30, 2019, Senate Bill 326 closes that gap. This second balcony inspection bill specifically focuses on common interest development buildings. While the bill requires inspections of EEEs, it goes further than that, dramatically impacting both reserve studies as well as construction defect litigation.
Last year’s SB 721 affects a major portion of California’s 2.8 million apartment units – specifically those that are in buildings with three or more multifamily dwellings. Its younger sister, SB 326, will make an even bigger impact, affecting over 52,000 common interest developments, which comprise nearly a quarter of the state’s housing (6 million+ units).
The Community Association Institute of California has come out in support of the bill, which CAI-CLAC had a hand in crafting, according to public statements by its PR Chair. That lobbying effort makes the new law a different beast.
Laying the Groundwork for Construction Defect Litigation
Unlike the previous bill, SB 326 (section 5551 of Civil Code) has a more rigorous inspection protocol:
- The inspector must be either a licensed structural engineer or architect.
- The bill requires inspecting a “random and statistically significant sample” of EEEs (95% confidence, error margin ± 5%).
- The bill defines the inspection process more explicitly, including defining the term “visual inspection” and permits the inspector to use professional judgement to conduct further inspections.
- The written report must be stamped by the inspector.
One might wonder why CAI would support a bill with a much more rigorous and expensive inspection methodology. However, in construction defect litigation, the gold standard for evidence is a statistically significant sample inspected by a licensed architect or engineer.
In addition to inspecting EEEs, another major change implemented by the bill is that no HOA governing documents can impose any preconditions or limitations to the board’s authority to commence and pursue legal proceedings against the developer or builder. It also nullifies any existing terms in associations’ covenants, conditions, and restrictions (CC&Rs).
The rationale behind nullifying CC&Rs comes to light by reading the bill analysis documents. When creating an HOA, developers have typically laid the groundwork for the association’s future self-governance, and often they wrote CC&Rs that prevent or severely limit HOAs from taking certain legal actions against the developer. These measures include binding arbitration or other alternative dispute resolution requirements or allowing the developer and/or its appointees to influence votes or other actions that could lead to litigation against them.
While the bill helps associations take action against shoddy construction, it, unfortunately, becomes another reason for developers and builders to avoid new condominium construction – one of the “missing middle” housing types California desperately needs.
Raising the Bar in Reserve Studies
Condo HOAs in California have to follow the Davis-Stirling Common Interest Development Act. One of the major components of that law is Civil Code Section 5550, which is conducting a reserve study every three years.
SB 326 states that the EEE inspections are to be done once every nine years and that the inspection report is to be incorporated into the reserve study. The report includes detailed information of each inspected element’s condition, expected future performance and remaining useful life, and repair/replacement recommendations.
By incorporating the EEE report into the reserve studies, the consultants who perform them will have access to high-quality information to more accurately estimate the total annual contribution to repair or replace balconies, stairways, and other exterior elements.
While the governor’s ink on the law is still wet, VERTEX will continue to closely analyze the details and implications of this new balcony law, as we have done with SB 721.
Since developing our Balcony Assurance service, we have been working closely with many proactive HOAs and condo owners in Southern California and the Bay Area, including some who already anticipated the impacts of SB 326. We look forward to helping others achieve compliance with both of the new laws.
This article was originally published by Xpera Group which is now part of The Vertex Companies, LLC.