Assessments & Reserves
CIVIL CODE 2007
ASSESSMENTS AND RESERVES
1365. Unless the governing documents impose more stringent standards, the association shall prepare and distribute to all of its members the following documents: (a) A pro forma operating budget, which shall include all of the following:
(1) The estimated revenue and expenses on an accrual basis.
(2) A summary of the association’s reserves based upon the most
recent review or study conducted pursuant to Section 1365.5, based
only on assets held in cash or cash equivalents, which shall be
printed in boldface type and include all of the following:
(A) The current estimated replacement cost, estimated remaining
life, and estimated useful life of each major component.
(B) As of the end of the fiscal year for which the study is
(i) The current estimate of the amount of cash reserves necessary
to repair, replace, restore, or maintain the major components.
(ii) The current amount of accumulated cash reserves actually set
aside to repair, replace, restore, or maintain major components.
(iii) If applicable, the amount of funds received from either a
compensatory damage award or settlement to an association from any
person or entity for injuries to property, real or personal, arising
out of any construction or design defects, and the expenditure or
disposition of funds, including the amounts expended for the direct
and indirect costs of repair of construction or design defects.
These amounts shall be reported at the end of the fiscal year for
which the study is prepared as separate line items under cash
reserves pursuant to clause (ii). In lieu of complying with the
requirements set forth in this clause, an association that is
obligated to issue a review of their financial statement pursuant to
subdivision (b) may include in the review a statement containing all
of the information required by this clause.
(C) The percentage that the amount determined for purposes of
clause (ii) of subparagraph (B) equals the amount determined for
purposes of clause (i) of subparagraph (B).
(3) A statement as to both of the following:
(A) Whether the board of directors of the association has
determined or anticipates that the levy of one or more special
assessments will be required to repair, replace, or restore any major
component or to provide adequate reserves therefor. If so, the
statement shall also set out the estimated amount, commencement date,
and duration of the assessment.
(B) The mechanism or mechanisms by which the board of directors
will fund reserves to repair or replace major components, including
assessments, borrowing, use of other assets, deferral of selected
replacement or repairs, or alternative mechanisms.
(4) A general statement addressing the procedures used for the
calculation and establishment of those reserves to defray the future
repair, replacement, or additions to those major components that the
association is obligated to maintain. The report shall include, but
need not be limited to, reserve calculations made using the formula
described in paragraph (4) of subdivision (b) of Section 1365.2.5,
and may not assume a rate of return on cash reserves in excess of 2
percent above the rediscount rate published by the Federal Reserve
Bank of San Francisco at the time the calculation was made.
The summary of the association’s reserves disclosed pursuant to
paragraph (2) shall not be admissible in evidence to show improper
financial management of an association, provided that other relevant
and competent evidence of the financial condition of the association
is not made inadmissible by this provision.
Notwithstanding a contrary provision in the governing documents, a
copy of the operating budget shall be annually distributed not less
than 30 days nor more than 90 days prior to the beginning of the
association’s fiscal year.
(b) A review of the financial statement of the association shall
be prepared in accordance with generally accepted accounting
principles by a licensee of the California Board of Accountancy for
any fiscal year in which the gross income to the association exceeds
seventy-five thousand dollars ($75,000). A copy of the review of the
financial statement shall be distributed within 120 days after the
close of each fiscal year.
(c) In lieu of the distribution of the pro forma operating budget
required by subdivision (a), the board of directors may elect to
distribute a summary of the pro forma operating budget to all of its
members with a written notice that the pro forma operating budget is
available at the business office of the association or at another
suitable location within the boundaries of the development, and that
copies will be provided upon request and at the expense of the
association. If any member requests that a copy of the pro forma
operating budget required by subdivision (a) be mailed to the member,
the association shall provide the copy to the member by first-class
United States mail at the expense of the association and delivered
within five days. The written notice that is distributed to each of
the association members shall be in at least 10-point boldface type
on the front page of the summary of the budget.
(d) A statement describing the association’s policies and
practices in enforcing lien rights or other legal remedies for
default in payment of its assessments against its members shall be
annually delivered to the members not less than 30 days nor more than
90 days immediately preceding the beginning of the association’s
(e) (1) A summary of the association’s property, general
liability, earthquake, flood, and fidelity insurance policies, which
shall be distributed not less than 30 days nor more than 90 days
preceding the beginning of the association’s fiscal year, that
includes all of the following information about each policy:
(A) The name of the insurer.
(B) The type of insurance.
(C) The policy limits of the insurance.
(D) The amount of deductibles, if any.
(2) The association shall, as soon as reasonably practicable,
notify its members by first-class mail if any of the policies
described in paragraph (1) have lapsed, been canceled, and are not
immediately renewed, restored, or replaced, or if there is a
significant change, such as a reduction in coverage or limits or an
increase in the deductible, as to any of those policies. If the
association receives any notice of nonrenewal of a policy described
in paragraph (1), the association shall immediately notify its
members if replacement coverage will not be in effect by the date the
existing coverage will lapse.
(3) To the extent that any of the information required to be
disclosed pursuant to paragraph (1) is specified in the insurance
policy declaration page, the association may meet its obligation to
disclose that information by making copies of that page and
distributing it to all of its members.
(4) The summary distributed pursuant to paragraph (1) shall
contain, in at least 10-point boldface type, the following statement:
“This summary of the association’s policies of insurance provides
only certain information, as required by subdivision (e) of Section
1365 of the Civil Code, and should not be considered a substitute for
the complete policy terms and conditions contained in the actual
policies of insurance. Any association member may, upon request and
provision of reasonable notice, review the association’s insurance
policies and, upon request and payment of reasonable duplication
charges, obtain copies of those policies. Although the association
maintains the policies of insurance specified in this summary, the
association’s policies of insurance may not cover your property,
including personal property or, real property improvements to or
around your dwelling, or personal injuries or other losses that occur
within or around your dwelling. Even if a loss is covered, you may
nevertheless be responsible for paying all or a portion of any
deductible that applies. Association members should consult with
their individual insurance broker or agent for appropriate additional
1365.1. (a) The association shall distribute the written notice
described in subdivision (b) to each member of the association during
the 60-day period immediately preceding the beginning of the
association’s fiscal year. The notice shall be printed in at least
12-point type. An association distributing the notice to an owner of
an interest that is described in Section 11212 of the Business and
Professions Code that is not otherwise exempt from this section
pursuant to subdivision (a) of Section 11211.7, may delete from the
notice described in subdivision (b) the portion regarding meetings
and payment plans.
(b) The notice required by this section shall read as follows:
“NOTICE ASSESSMENTS AND FORECLOSURE
This notice outlines some of the rights and responsibilities of
owners of property in common interest developments and the
associations that manage them. Please refer to the sections of the
Civil Code indicated for further information. A portion of the
information in this notice applies only to liens recorded on or after
January 1, 2003. You may wish to consult a lawyer if you dispute an
ASSESSMENTS AND NONJUDICIAL FORECLOSURE
The failure to pay association assessments may result in the loss
of an owner’s property without court action, often referred to as
nonjudicial foreclosure. When using nonjudicial foreclosure, the
association records a lien on the owner’s property. The owner’s
property may be sold to satisfy the lien if the lien is not paid.
Assessments become delinquent 15 days after they are due, unless the
governing documents of the association provide for a longer time.
(Sections 1366 and 1367.1 of the Civil Code)
In a nonjudicial foreclosure, the association may recover
assessments, reasonable costs of collection, reasonable attorney’s
fees, late charges, and interest. The association may not use
nonjudicial foreclosure to collect fines or penalties, except for
costs to repair common areas damaged by a member or a member’s
guests, if the governing documents provide for this. (Sections 1366
and 1367.1 of the Civil Code)
The association must comply with the requirements of Section
1367.1 of the Civil Code when collecting delinquent assessments. If
the association fails to follow these requirements, it may not record
a lien on the owner’s property until it has satisfied those
requirements. Any additional costs that result from satisfying the
requirements are the responsibility of the association. (Section
1367.1 of the Civil Code)
At least 30 days prior to recording a lien on an owner’s separate
interest, the association must provide the owner of record with
certain documents by certified mail. Among these documents, the
association must send a description of its collection and lien
enforcement procedures and the method of calculating the amount. It
must also provide an itemized statement of the charges owed by the
owner. An owner has a right to review the association’s records to
verify the debt. (Section 1367.1 of the Civil Code)
If a lien is recorded against an owner’s property in error, the
person who recorded the lien is required to record a lien release
within 21 days, and to provide an owner certain documents in this
regard. (Section 1367.1 of the Civil Code)
The collection practices of the association may be governed by
state and federal laws regarding fair debt collection. Penalties can
be imposed for debt collection practices that violate these laws.
When an owner makes a payment, he or she may request a receipt,
and the association is required to provide it. On the receipt, the
association must indicate the date of payment and the person who
received it. The association must inform owners of a mailing address
for overnight payments. ( Section 1367.1 of the Civil Code)
An owner may dispute an assessment debt by giving the board of the
association a written explanation, and the board must respond within
15 days if certain conditions are met. An owner may pay assessments
that are in dispute in full under protest, and then request
alternative dispute resolution. (Sections 1366.3 and 1367.1 of the
An owner is not liable for charges, interest, and costs of
collection, if it is established that the assessment was paid
properly on time. (Section 1367.1 of the Civil Code)
MEETINGS AND PAYMENT PLANS
An owner of a separate interest that is not a time-share may
request the association to consider a payment plan to satisfy a
delinquent assessment. The association must inform owners of the
standards for payment plans, if any exist. (Section 1367.1 of the
The board of directors must meet with an owner who makes a proper
written request for a meeting to discuss a payment plan when the
owner has received a notice of a delinquent assessment. These
payment plans must conform with the payment plan standards of the
association, if they exist. (Section 1367.1 of the Civil Code)”
1365.2. (a) (1) The association shall make the accounting books and
records and the minutes of proceedings of the association available
for inspection and copying by a member of the association, or the
member’s designated representative, as provided by this section.
(2) A member of the association may designate another person to
inspect and copy the accounting books and records and the minutes of
proceedings on the member’s behalf. The member shall make this
designation in writing.
(b) (1) The association shall make the accounting books and
records and the minutes of proceedings available for inspection and
copying in the association’s business office within the common
(2) If the association does not have a business office within the
development, the association shall make the accounting books and
records and minutes of proceedings available for inspection and
copying at a place that the requesting member and the association
(3) If the association and the requesting member cannot agree upon
a place for inspection and copying pursuant to paragraph (2), or if
the requesting member submits a written request directly to the
association for copies, the association may satisfy the requirement
to make the accounting books and records and the minutes of
proceedings available for inspection and copying by mailing copies of
the requested records to the member by first-class mail within 10
days of receiving the member’s request. The association may bill the
requesting member for its actual, reasonable costs for copying and
mailing requested documents. The association shall inform the member
of the amount of the copying and mailing costs before sending the
(c) (1) Except as provided in paragraph (2), the association may
withhold or redact information from the accounting books and records
and the minutes of proceedings for any of the following reasons:
(A) The release of the information is reasonably likely to lead to
identity theft. For the purposes of this section, “identity theft”
means the unauthorized use of another person’s personal identifying
information to obtain credit, goods, services, money, or property.
(B) The release of the information is reasonably likely to lead to
fraud in connection with the association.
(C) The information is privileged under law.
(2) Except as provided by the attorney-client privilege, the
association may not withhold or redact information concerning the
compensation paid to employees, vendors, or contractors.
Compensation information for individual employees shall be set forth
by job classification or title, not by the employee’s name, social
security number, or other personal information.
(d) (1) The accounting books and records and the minutes of
proceedings of an association, and any information from them, may not
be sold, used for a commercial purpose, or used for any other
purpose not reasonably related to a member’s interest as a member.
An association may bring an action against any person who violates
this section for injunctive relief and for actual damages to the
association caused by the violation.
(2) This section may not be construed to limit the right of an
association to damages for misuse of information obtained from the
accounting books and records and the minutes of proceedings pursuant
to this section or to limit the right of an association to injunctive
relief to stop the misuse of this information.
(3) An association shall be entitled to recover reasonable costs
and expenses, including reasonable attorney’s fees, in a successful
action to enforce its rights under this section.
(e) A member of an association may bring an action to enforce the
member’s right to inspect and copy the accounting books and records
and the minutes of proceedings of the association. If a court finds
that the association unreasonably withheld access to the accounting
books and records and the minutes of proceedings, the court shall
award the member reasonable costs and expenses, including reasonable
attorney’s fees, and may assess a civil penalty of up to five hundred
dollars ($500) for each violation.
1365.2.5. (a) The disclosures required by this article in regard to
an association or a property shall be summarized on the following
Assessment and Reserve Funding Disclosure Summary
(1) The current assessment per unit is $_______ per ____.
Note: If assessments vary by the size or type of unit, the
assessment applicable to this unit may be found on page ____
of the attached report.
(2) Additional assessments that have already been scheduled to be
imposed or charged, regardless of the purpose, if they have
been approved by the board and/or members:
: Date assessment is: Amount per unit per : Purpose of the
: due: : month (If assessments:
: :are variable, see note:
: : immediately below): :
: : Total: :
Note: If assessments vary by the size or type of unit, the
applicable to this unit may be found on page ____ of the attached
(3) Based upon the most recent reserve study and other information
available to the board of directors, will currently projected
reserve account balances be sufficient at the end of each year
to meet the association’s obligation for repair and/or
of major components during the next 30 years?
Yes _____ No _____
(4) If the answer to #3 is no, what additional assessments or other
contributions to reserves would be necessary to ensure that
sufficient reserve funds will be available each year during the
next 30 years?
: Approximate date assessment : Amount per unit :
: will be due: : per month: :
: : Total: :
(5) The following major components, which are included in the
study, are NOT included in the existing reserve funding:
:Major component:: Useful remaining : Reason this major component :
: : life in years: : was not included: :
(6) As of the last reserve study or update, the current balance in
the reserve fund is $____. Based on the method of calculation in
paragraph (4) of subdivision (b) of Section 1365.2.5, the
amount in the reserve fund is $____, and if an alternate, but
generally accepted, method of calculation is also used, the
amount is $____. (See attached explanation)
NOTE: The financial representations set forth in this summary
are based on the best estimates of the preparer at that time. The
estimates are subject to change.
(b) For the purposes of preparing a summary pursuant to this
(1) “Estimated remaining useful life” means the time reasonably
calculated to remain before a major component will require
(2) “Major component” has the meaning used in Section 1365.5.
Components with an estimated remaining useful life of more than 30
years may be included in a study as a capital asset or disregarded
from the reserve calculation, so long as the decision is revealed in
the reserve study report and reported in the Assessment and Reserve
Funding Disclosure Summary.
(3) The form set out in subdivision (a) shall accompany each pro
forma operating budget or summary thereof that is delivered pursuant
to this article. The form may be supplemented or modified to clarify
the information delivered, so long as the minimum information set
out in subdivision (a) is provided.
(4) For the purpose of the report and summary, the amount of
reserves needed to be accumulated for a component at a given time
shall be computed as the current cost of replacement or repair
multiplied by the number of years the component has been in service
divided by the useful life of the component. This shall not be
construed to require the board to fund reserves in accordance with
1365.3. Unless the governing documents impose more stringent
standards, any community service organization as defined in paragraph
(3) of subdivision (c) of Section 1368 whose funding from the
association or its members exceeds 10 percent of the organization’s
annual budget shall prepare and distribute to the association a
report that meets the requirements of Section 5012 of the
Corporations Code, and that describes in detail administrative costs
and identifies the payees of those costs in a manner consistent with
the provisions of Section 1365.2. If the community service
organization does not comply with the standards, the report shall
disclose the noncompliance in detail. If a community service
organization is responsible for the maintenance of major components
for which an association would otherwise be responsible, the
community service organization shall supply to the association the
information regarding those components that the association would use
to complete disclosures and reserve reports required under this
article. An association may rely upon information received from a
community service organization, and shall provide access to the
information pursuant to the provisions of Section 1365.2.
1365.5. (a) Unless the governing documents impose more stringent
standards, the board of directors of the association shall do all of
(1) Review a current reconciliation of the association’s operating
accounts on at least a quarterly basis.
(2) Review a current reconciliation of the association’s reserve
accounts on at least a quarterly basis.
(3) Review, on at least a quarterly basis, the current year’s
actual reserve revenues and expenses compared to the current year’s
(4) Review the latest account statements prepared by the financial
institutions where the association has its operating and reserve
(5) Review an income and expense statement for the association’s
operating and reserve accounts on at least a quarterly basis.
(b) The signatures of at least two persons, who shall be members
of the association’s board of directors, or one officer who is not a
member of the board of directors and a member of the board of
directors, shall be required for the withdrawal of moneys from the
association’s reserve accounts.
(c) (1) The board of directors shall not expend funds designated
as reserve funds for any purpose other than the repair, restoration,
replacement, or maintenance of, or litigation involving the repair,
restoration, replacement, or maintenance of, major components which
the association is obligated to repair, restore, replace, or maintain
and for which the reserve fund was established.
(2) However, the board may authorize the temporary transfer of
moneys from a reserve fund to the association’s general operating
fund to meet short-term cashflow requirements or other expenses, if
the board has provided notice of the intent to consider the transfer
in a notice of meeting, which shall be provided as specified in
Section 1363.05. The notice shall include the reasons the transfer
is needed, some of the options for repayment,and whether a special
assessment may be considered. If the board authorizes the transfer,
the board shall issue a written finding, recorded in the board’s
minutes, explaining the reasons that the transfer is needed, and
describing when and how the moneys will be repaid to the reserve
fund. The transferred funds shall be restored to the reserve fund
within one year of the date of the initial transfer, except that the
board may, after giving the same notice required for considering a
transfer, and, upon making a finding supported by documentation that
a temporary delay would be in the best interests of the common
interest development, temporarily delay the restoration. The board
shall exercise prudent fiscal management in maintaining the integrity
of the reserve account, and shall, if necessary, levy a special
assessment to recover the full amount of the expended funds within
the time limits required by this section. This special assessment is
subject to the limitation imposed by Section 1366. The board may,
at its discretion, extend the date the payment on the special
assessment is due. Any extension shall not prevent the board from
pursuing any legal remedy to enforce the collection of an unpaid
(d) When the decision is made to use reserve funds or to
temporarily transfer moneys from the reserve fund to pay for
litigation, the association shall notify the members of the
association of that decision in the next available mailing to all
members pursuant to Section 5016 of the Corporations Code, and of the
availability of an accounting of those expenses. Unless the
governing documents impose more stringent standards, the association
shall make an accounting of expenses related to the litigation on at
least a quarterly basis. The accounting shall be made available for
inspection by members of the association at the association’s office.
(e) At least once every three years, the board of directors shall
cause to be conducted a reasonably competent and diligent visual
inspection of the accessible areas of the major components which the
association is obligated to repair, replace, restore, or maintain as
part of a study of the reserve account requirements of the common
interest development, if the current replacement value of the major
components is equal to or greater than one-half of the gross budget
of the association which excludes the association’s reserve account
for that period. The board shall review this study, or cause it to be
reviewed, annually and shall consider and implement necessary
adjustments to the board’s analysis of the reserve account
requirements as a result of that review.
The study required by this subdivision shall at a minimum include:
(1) Identification of the major components which the association
is obligated to repair, replace, restore, or maintain which, as of
the date of the study, have a remaining useful life of less than 30
(2) Identification of the probable remaining useful life of the
components identified in paragraph (1) as of the date of the study.
(3) An estimate of the cost of repair, replacement, restoration,
or maintenance of the components identified in paragraph (1).
(4) An estimate of the total annual contribution necessary to
defray the cost to repair, replace, restore, or maintain the
components identified in paragraph (1) during and at the end of their
useful life, after subtracting total reserve funds as of the date of
(f) As used in this section, “reserve accounts” means both of the
(1) Moneys that the association’s board of directors has
identified for use to defray the future repair or replacement of, or
additions to, those major components which the association is
obligated to maintain.
(2) The funds received and not yet expended or disposed from
either a compensatory damage award or settlement to an association
from any person or entity for injuries to property, real or personal,
arising from any construction or design defects. These funds shall
be separately itemized from funds described in paragraph (1).
(g) As used in this section, “reserve account requirements” means
the estimated funds which the association’s board of directors has
determined are required to be available at a specified point in time
to repair, replace, or restore those major components which the
association is obligated to maintain.
(h) This section does not apply to an association that does not
have a “common area” as defined in Section 1351.