In California, when a person purchases a unit, such as a condominium, in a common interest development, state law requires that he or she be provided with an extensive list of documents. That list includes things such as governing documents, operating rules, restrictions on occupancy and use, the amount of special and regular assessments, and any current special assessments or penalties levied against the unit to be transferred.

It is the seller’s responsibility to provide those documents to the buyer. It is the responsibility of the Homeowner Association (HOA) to get them to the owner/seller within ten days of the mailing or delivery of a request for documents.

Current California law limits the fee that the HOA may charge for producing and delivering those documents to “a reasonable fee for this service based upon the association’s actual cost to procure, prepare, and reproduce the requested items.”

How is it, then, that the fees charged for providing these documents commonly run into the hundreds of dollars? Surely it doesn’t cost that much to produce them. The trick, so to speak, is this: the HOA delegates the task, and the setting of the fees, to a third party – typically the management company. Then, it is argued, “The HOA is limited, but not the management company. They can charge whatever they like.”

A bogus argument, you say? Well, the California 4th Appellate District Court of Appeal didn’t think so. In a 2007 decision (Berryman v. Merit Property Management) the court upheld the practice, ruling that the legislature had only limited the fees that HOAs could charge. It had not limited their agents or third parties.

A fair number of people in the real estate business have felt that this situation unfairly takes advantage of principals in the affected sales transactions. Especially at a time when there isn’t a whole lot of money to go around. Thus it is that the California Association of Realtors® (CAR) has sponsored legislation to address these matters. In February of this year, Assembly Bill 771 (Butler) was introduced.

AB 771 includes language stating that the original law (Civil Code §1368) “was intended to apply to any person that provided the specified documents”, and that the Berryman decision “does not reflect the Legislature’s intent to limit the amount of fees that may be charged for the provision of the specified documents.”

AB 771 amends Civil Code §1368 by extending the fee limitations to “the agent of the association”, meaning “any person or entity performing services for, or acting on behalf of, the association.” It also adds that, upon receipt of a request for documents, “the association or agent of the association shall provide a written estimate of the fees that will be assessed for the provision of the documents.”

Hearings on this bill have not yet begun and it is not known what opposition may be forthcoming. Proponents of the bill may be in for a surprise. I say this because the bill, if passed can be expected to have some unpleasant unintended consequences.

As a rule, HOAs hate to raise dues. Obviously, if management companies have to charge associations more for their basic services, dues will need to go up. One thing that enables management companies to keep their basic fees lower is that they are able to generate profits on special services such as providing the documents required in a sale. If their ability to generate these profits is restricted, as AB 771 intends, then one can expect they will be raising their fees for basic services. HOAs may find that to be an unwelcome turn of events.

Published: March 22, 2011

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .