California Legislature—2015–16 Regular Session

Assembly Bill No. 596

Introduced by Assembly Member Daly

February 24, 2015

An act to amend Sections 5300 and 5810 of the Civil Code, relating to common interest developments.

LEGISLATIVE COUNSEL’S DIGEST

AB 596, as introduced, Daly. Common interest developments: annual budget report.

Existing law governing common interest developments, the Davis-Stirling Common Interest Development Act, requires the association of a common interest development to prepare and distribute to all of its members certain documents, including an annual budget report that includes, among other items of information, a pro forma operating budget. The act requires a notice to be provided if an insurance policy described in the annual budget report lapses, is canceled, or is not immediately renewed, restored, or replaced, or if there is a significant change as to the policy.

This bill would require the annual budget report to also include a statement describing the status of the common interest development as a Federal Housing Administration (FHA)-approved condominium project.

This bill would also require the association of a common interest development to provide a notice to its members if there is any change in the status of the common interest development as an FHA-approved condominium project pursuant to FHA guidelines.

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 5300 of the Civil Code is amended to
read:

5300.  

(a) Notwithstanding a contrary provision in the
governing documents, an association shall distribute an annual
budget report 30 to 90 days before the end of its fiscal year.

(b) Unless the governing documents impose more stringent
standards, the annual budget report shall include all of the
following information:

(1) A pro forma operating budget, showing the estimated
revenue and expenses on an accrual basis.

(2) A summary of the association’s reserves, prepared pursuant
to Section 5565.

(3) A summary of the reserve funding plan adopted by the board,
as specified in paragraph (5) of subdivision (b) of Section 5550.
The summary shall include notice to members that the full reserve
study plan is available upon request, and the association shall
provide the full reserve plan to any member upon request.

(4) A statement as to whether the board 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.

(5) A statement as to whether the board, consistent with the
reserve funding plan adopted pursuant to Section 5560, 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.

(6) A statement as to the mechanism or mechanisms by which
the board will fund reserves to repair or replace major components,
including assessments, borrowing, use of other assets, deferral of
selected replacements or repairs, or alternative mechanisms.

(7) 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 statement shall
include, but need not be limited to, reserve calculations made using
the formula described in paragraph (4) of subdivision (b) of Section
5570, 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.

(8) A statement as to 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.

(9) A summary of the association’s property, general liability,
earthquake, flood, and fidelity insurance policies. For each policy,
the summary shall include the name of the insurer, the type of
insurance, the policy limit, and the amount of the deductible, if
any. To the extent that any of the required information 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 with the annual budget report. The
summary distributed pursuant to this paragraph 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 Section 5300 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.”

begin insert

(10) A statement describing the status of the common interest
development as a Federal Housing Administration (FHA)-approved
condominium project pursuant to FHA guidelines, including
whether the common interest development is an FHA-approved
condominium project.

end insert

(c) The annual budget report shall be made available to the
members pursuant to Section 5320.

(d) The summary of the association’s reserves disclosed pursuant
to paragraph (2) of subdivision (b) 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.

(e) The Assessment and Reserve Funding Disclosure Summary
form, prepared pursuant to Section 5570, shall accompany each
annual budget report or summary of the annual budget report that
is delivered pursuant to this article.

SEC. 2.  

Section 5810 of the Civil Code is amended to read:

5810.  

The association shall, as soon as reasonably practicable,
provide individual notice pursuant to Section 4040 to all members
if begin delete any end delete begin insert either of the following occur: end insert

begin insert (a) end insert begin insert   end insert begin insert Any end insert of the policies described in the annual budget report
pursuant to Section 5300 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 the annual budget report pursuant to Section 5300, the
association shall immediately notify its members if replacement
coverage will not be in effect by the date the existing coverage
will lapse.

begin insert

(b) Any change in the status of the common interest development
as a Federal Housing Administration (FHA)-approved
condominium project pursuant to FHA guidelines, including a
description of the type of change, such as the approval,
cancellation, or other nonrenewal of the approval.

end insert