Distribution of Financial & Insurance Documents
CALIFORNIA CIVIL CODE
Preparation and distribution of financial and insurance documents
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, 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 prepared:
(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) subparagraph (B) equals the amount determined for purposes of clause (i) of subparagraph (B).
(3) A statement as to 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.
(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 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.
A copy of the operating budget shall be annually distributed not less than 45 days nor more than 60 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 during the 60-day period immediately preceding the beginning of the association’s fiscal year.
(e)(1) A summary of the association’s property, general liability, and earthquake and flood and fidelity insurance policies, which shall be distributed within 60 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 coverage.”
Added Stats 1985 ch 874 § 14. Amended Stats 1988 ch 1388 § 1, ch 1409 § 2; Stats 1990 ch 716 § 1 (AB 2438); Stats 1991 ch 412 § 1 (AB 623); Stats 1995 ch 199 § 1 (SB 300); Stats 1996 ch 396 § 1 (SB 1525); Stats 1997 ch 17 § 14 (SB 947); Stats 1999 ch 898 § 1 (AB 1048); Stats 2000 ch 1055 § 8 (AB 2889), effective September 30, 2000; Stats 2002 ch 1116 § 7 (AB 555).
Former § 1365 was enacted 1872 and repealed Stats 1931 ch 281 (Prob C § 1700).
(1) Substituted “An estimate of the current replacement costs of the estimated remaining useful” for “The identification of the estimated remaining” at the beginning of subd (a)(3); (2) amended subd (b) by (a) deleting “copy of a” after “A”; and (b) adding “A copy of” at the beginning of the second sentence; (3) added subd (c); and (4) redesignated former subd (c) to be subd (d). (As amended Stats 1988, ch 1409, compared to the section as it read prior to 1988. This section was also amended by an earlier chapter, ch 1388. See Gov C § 9605.)
(1) Substituted the introductory clause for the former introductory clause which read: “Unless the declaration imposes more stringent standards, financial statements shall be prepared by the association and distributed to all its members as follows:”; (2) substituted the introductory clause of subd (a) for the former first paragraph and introductory clause of subd (a) which read: “(a) A pro forma operating budget shall be distributed not less than 45 days nor more than 60 days prior to the beginning of the association’s fiscal year. The budget shall include all of the following:”; (3) added “, and ” after “replacement costs of” in subd (a)(3); (4) added the last paragraph in subd (a); and (5) amended subd (c) by (a) substituting “pro forma operating budget” for “financial statement” and for “statement” wherever it appears; (b) adding “that” after “member requests” in the second sentence; (c) deleting “to” after “subdivision (a)” in the second sentence; and (d) substituting “budget” for “statement” at the end.
(1) Substituted subds (a)(2) and (a)(3) for former subds (a)(2) and (a)(3) which read: “(2) The identification of the total cash reserves currently set aside.
“(3) An estimate of the current replacement costs of, and the estimated remaining useful life of, and the methods of funding used to defray the future repair, replacement, or additions to, those major components which the association is obligated to maintain.”; (2) substituted “replacement,” for “replacements” in subd (a)(4); and (3) added the second paragraph of subd (a).
(1) Substituted “governing documents impose” for “declaration imposes” in the introductory clause; and (2) added subds (e)-(i).
(1) Substituted subd (e) for former subd (e) which read: “(e) A summary of the association’s general liability policy that states all of the following:
“(1) The name of the insurer.
“(2) The policy limits of the insurance.
“(3) If an insurance agent, as defined in Section 1621 of the Insurance Code, an insurance broker, as defined in Section 1623 of the Insurance Code, or an agent of an insurance agent or insurance broker has assisted the association in the development of the general liability policy limits and if the recommendations of the insurance agent or insurance broker were followed.
“(4) The insurance deductibles.
“(5) The person or entity that is responsible for paying the insurance deductible in the event of loss.
“(6) Whether or not the insurance coverage extends to the real property improvements to the separate interests.”; and (2) deleted former subds (f)-(i) which read: “(f) A summary of the association’s earthquake and flood insurance policy, if one has been issued, that states all of the following:
“(1) The name of the insurer.
“(2) The policy limits of the insurance.
“(3) The insurance deductibles.
“(4) The person or entity that is responsible for paying the insurance deductible in the event of loss.
“(g) A summary of the liability coverage policy for the director and officers of the association that lists all of the following:
“(1) The name of the insurer.
“(2) The limits of the insurance.
“(h) Notwithstanding subdivisions (e), (f), and (g), the association shall, as soon as reasonably practical, notify its members by first-class mail if any of the policies have been canceled and not immediately replaced. If the association renews any of the policies or a new policy is issued to replace an insurance policy of the association, and where there is no lapse in coverage, the association shall notify its members of that fact in the next available mailing to all members pursuant to Section 5016 of the Corporations Code.
“(i) To the extent that the information to be disclosed pursuant to subdivisions (e), (f), and (g) is specified in the insurance policy declaration page, the association may meet the requirements of those subdivisions by making copies of that page and distributing it to all its members.”
Substituted (1) “equals” for “is” before “of the amount”; and (2) “as to” for “for” after “in the deductible,” in subd (e)(2).
Amended subd (a)(2) by (1) adding subd (a)(2)(B)(iii); and (2) deleting “of” after “clause (ii)” in subd (a)(2)(C).
(1)Deleted “of” after “equals” in subd (a)(2)(C); and (2)substituted “California Board of Accountancy” for “California State Board of Accountancy” in subd (b).
(1)Substituted “bold” for “boldface” in subd (a) (2); (2) added “and fidelity” in subd (e) (1); (3)substituting “Proceeding’s” for “Proceeding” in subds (b), (e) (2), and (h) (2); (4) amended subd (e) by (a) in (B) deleting “such” before “policy of”; (b)adding “provided” at the end of the last sentence; (c)substituting “facilitator” for “facility” before “for designation as peripheral”; (5) deleted the comma in the last sentence of subd (f) (1) after “respondent”.
Former § 1730, as added Stats 1983 ch 1288 § 2.
Cal Forms Pl & Practice (Matthew Bender) ch 124 “Condominiums and Other Common Interest Developments”
Witkin Summary (9th) ed) Equity § 46
Taking a closer look: significant new California legislation enacted in 1988. 12 CEB Real Prop L Rep No. 2 p 55
Miller & Starr, Cal Real Estate 3d §§ 25:104, 25:111, 25:145
Law Review Articles:
1988 legislative summary. 7 Cal Real Prop J No. 1 p 1