BILL NUMBER: AB 2100 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 9, 2006
AMENDED IN ASSEMBLY APRIL 19, 2006
INTRODUCED BY Assembly Member Laird
( Coauthor: Assembly Member
Mullin )
FEBRUARY 17, 2006
An act to amend Sections 1365 and 1365.2.5 of, and to add Sections
1365.4 and 1365.6 to, the Civil Code, relating to common interest
developments.
LEGISLATIVE COUNSEL'S DIGEST
AB 2100, as amended, Laird Common interest developments: reserve
funding.
(1) Existing law requires the association of a common interest
development to prepare and distribute to all members a pro forma
operating budget that includes, among other things, a statement
regarding the mechanism or mechanisms by which the board of directors
will fund reserves to repair or replace major components and a
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.
This bill would require the pro forma operating budget to also
include a statement as to whether the board of directors of the
association has determined to defer or not undertake repairs or
replacement of any major component and whether the association has
any outstanding loans, as specified. The bill would require the board
of directors of the association to adopt a reserve funding
plan that is sufficient indicates how
the association plans to fund the reserve account to meet the
association's obligation for the repair and replacement of all major
components, as specified. This bill would require that if the board
of directors determines an assessment increase is required to fund
the reserve funding plan, the any
assessment increase the board adopts shall be
approved in a separate board action from the action to adopt a
reserve plan. The bill would require a summary of the reserve
funding plan to be included in the pro forma operating budget
distributed to all members.
(2) Existing law requires the association of a common interest
development to distribute a disclosure regarding assessment and
reserve funding in a certain form.
This bill would revise that form, as specified.
(3) Existing law provides that no contract or other
transaction between a corporation and one or more of its directors,
or any corporation, firm, or association in which any of
its directors has a material financial interest or are directors
thereof, is either void or voidable because the director or
directors, or the other corporation, firm, or association, are
parties or present at the meeting of the board or a committee that
authorizes, approves, or ratifies the contract or transaction, if
certain disclosures are made and other specified conditions are met.
Existing law also provides that interested or common directors may be
counted in determining the presence of a quorum at a meeting of the
board or a committee that authorizes, approves, or ratifies a
contract or transaction.
This bill would make these provisions applicable to any contract
or other transaction authorized, approved, or ratified by the board
of directors of an association or a committee of the board,
regardless of whether the association is a corporation.
Existing law imposes extensive fiscal duties on the board of
directors of the association of a common interest development,
including, among other things, preparation of the pro forma operating
budget described above, collection of assessments, and accounting of
association expenses.
This bill would require any member of the board of directors of
the association to disqualify himself or herself from making,
participating in the making of, or attempting to influence any
decisions of the board or a committee of the board with respect to a
contract or transaction in which he or she has a material financial
interest, as specified, and would specify applicable procedures in
the event one or more board members has a material financial interest
in a contract or other transaction involving the association.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1365 of the Civil Code is amended to read:
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
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). Instead 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 all of the following:
(A) Whether the board of directors of the association has
determined to defer or not undertake repairs or replacement of any
major component with a remaining life of 30 years or less ,
including a justification for the deferral or decision not to
undertake the repairs or replacement .
(B) 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.
(C) 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.
(D) Whether the association has any outstanding loans with an
original term of more than one year, including the payee, interest
rate, amount outstanding, annual payment, and when the loan is
scheduled to be retired.
(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 discount 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) Commencing January 1, 2009, a summary of the reserve
funding plan adopted by the board of directors of the
association, as specified in Section 1365.4.
(c) 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.
(d) Instead 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.
(e) 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
fiscal year.
(f) (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 (f) 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."
SEC. 2. Section 1365.2.5 of the Civil Code is amended to read:
1365.2.5. (a) The disclosures required by this article in regard
to an association or a property shall be summarized on the following
form:
Assessment and Reserve Funding Disclosure Summary
(1) The current regular assessment per ownership interest is
$_____ per ____. Note: If assessments vary by the size or type of
ownership interest, the assessment applicable to this ownership
interest may be found on page _____ of the attached summary.
(2) Additional regular or special 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:
+---------------+----------------+-----------------+
| | Amount per | |
| | ownership | |
| | interest per | |
| | month or year | |
| | (If assessments| |
| | are variable, | |
| | see note | |
| Date | | |
| assessment | immediately | Purpose of the |
| will be due: | below): | assessment: |
+---------------+----------------+-----------------+
| | | |
+---------------+----------------+-----------------+
| | | |
+---------------+----------------+-----------------+
| | | |
+---------------+----------------+-----------------+
| |Total: | |
+---------------+----------------+-----------------+
Note: If assessments vary by the size or type of ownership
interest, the assessment applicable to this ownership interest may be
found on page ____ of the attached report.
(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
replacement 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 that have not yet been approved by the board or the members
+------------------+-------------+
| | Amount per |
| Approximate date | ownership |
| assessment | interest |
| | per month or|
| will be due: | year: |
+------------------+-------------+
| | |
+------------------+-------------+
| | |
+------------------+-------------+
| | |
+------------------+-------------+
| | |
+------------------+-------------+
| |Total: |
+------------------+-------------+
(5) All major components are included in the reserve study and
are included in its calculations.
(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 required amount in
the reserve fund is $_______, and if estimated amount
required in the reserve fund at the end of the current fiscal year is
$____, based in whole or in part on the last reserve
study or update prepared by ____ as of ____ (month), ____ (year). The
projected reserve fund cash balance at the end of the current fiscal
year is $____, resulting in reserves being ____% funded at this
date. If an alternate, but generally accepted, method of
calculation is also used, the required reserve 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
section:
(1) "Estimated remaining useful life" means the time reasonably
calculated to remain before a major component will require
replacement.
(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
this calculation.
SEC. 3. Section 1365.4 is added to the Civil Code, to read:
1365.4. (a) The board of directors of the association ,
acting as a fiduciary, shall adopt a reserve funding
plan that is sufficient indicates how
the association plans to fund the reserve account to meet the
association's obligation for the repair and replacement of all major
components with an expected remaining life of 30 years or less, not
including those components that the board has determined will not be
replaced or repaired. The plan shall include a schedule of the date
and amount of any change in regular or special assessments that would
be needed to fund sufficiently the reserve funding
plan. The board shall revise the reserve funding plan
every three years, based on the study required in subdivision (e) of
Section 1365.5.
(b) An action by the board of directors regarding the reserve
funding plan shall take place at an open meeting before the
membership of the association as described in Section 1363.05.
(c) If the board of directors determines that an assessment
increase is necessary to fund the reserve funding plan,
the increase any increase the board adopts
shall be approved in a separate action of the board that is
consistent with the procedure described in Section 1366.
SEC. 4. Section 1365.6 is added to the Civil Code, to read:
1365.6. Any member of the board of directors of the
association shall disqualify himself or herself from making,
participating in the making of, or attempting to influence any
decisions of the board or a committee of the board with respect to a
contract or transaction in which he or she has a material financial
interest, as that term is used in Section 310 of the Corporations
Code. In the event one or more board members has a material financial
interest in a contract or other transaction involving the
association, the provisions of Section 310 of the Corporations Code
shall apply. Notwithstanding any other law, and
regardless of whether an association is a corporation, as
defined in Section 162 of the Corporations Code, the provisions of
Section 310 of the Corporations Code shall apply to any contract or
other transaction authorized, approved, or ratified by the board or a
committee of the board.
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