After California Proposition 13 passed in 1978, the raising of taxes for state and local government bodies became increasingly difficult.  By the mid-1980’s California was seeing a downslide in its ability to provide adequate public services.  Criminal elements were also proportionately on the rise.

Subsequently, developers began to worry that the property taxes in their new developments would be used to pay for services in older communities (whose taxes were held at time-of-sale market value by Proposition 13).  These entrepreneurs wanted their planned communities to retain a common look and neighborhood feel, which would retain property integrity.  Rather than incorporate into separate cities or townships, the Davis-Stirling Act was essentially created to levy HOA fees, which would tunnel funds back into the community to enforce regulations and maintain a cohesive environment.

Enacted in 1985,  the Davis-Stirling Common Interest Development Act (Davis-Stirling Act) is that portion of the California Civil Code that governs condos, cooperatives and PUD (planned unit development) communities.  The Davis-Stirling Act addressed several areas but essentially gave the following powers to the community developer and eventually its HOA boards:

a.    Allowed the developer to create an HOA (Home Owners Association) to govern the development by recording a Declaration of Covenants, Conditions and Restrictions (CC&R’s) against the parcels.
b.    The Supreme Court of California recognized the CC&R’s as the constitution of the HOA, and agreed they would be legally binding for its members unless there was a conflict with state or federal law – in which case those laws take precedence.
c.    The HOA board was allowed to create legally binding rules upon the members as long as they did not conflict with either the CC&R’s or state and federal laws.  Board meetings were generally open to members, with a few exceptions.
d.    Fees would be levied on homeowners to be used for community functions such as gatehouses, as well as maintenance of common areas (like parking lots, pools, roofs, etc.).

Here is an interesting interview with Lawrence Stirling, former California Assembly member and author of the Davis-Stirling Act, discussing how the Davis-Stirling Act first came into being:

 

Though the Davis-Stirling Act’s original intentions were admiral – budgeted planning to allow for proper maintenance and future improvements – its enforcement has since become more focused on accounting.  The compliance-driven reserve report doesn’t even require its community to fund its planned budget.  Many special assessments are still being levied due to deferred maintenance and lack of reserves, a practice that sparked the California Realtors Association’s sponsorship of the 2005 Reserve Summary Disclosure – enacted to protect buyers from getting hit with undisclosed assessments.

Watch for next week’s post on the latest Amendments to the Davis-Stirling Act!