For many associations with a December year end, September marks the first opportunity for the board of directors to review the first draft of the budget and disclosures materials. As of January 1, 2014, changes to the Davis-Stirling Act now require that budget documents and disclosures be distributed in the form of the Annual Budget Report and the Annual Policy Statement.
Civil Code §5300 requires the Annual Budget Report (“Report”) be distributed to the membership 30-90 days prior to the fiscal year end. Unless the governing documents provide for more stringent standards, the Report must now include the following documents:
- a pro forma operating budget.
- a summary of the association’s reserves (Civil Code §5565).
- a summary of the reserve funding plan (Civil Code §5550(b)(5)). The summary shall include a notice that the full reserve plan is available upon request, and the association shall provide the full reserve plan to any member upon request.
- a statement as to whether the board has determined to defer maintenance of any major component, including a justification for the deferral.
- a statement as to whether the board anticipates a special assessment. If so, the statement shall include the amount, commencement date, and duration of the assessment.
- a statement as to the mechanism by which the board will fund reserves.
- a statement addressing the procedures used to calculate reserves (Civil Code §5570(b)(4)).
- a statement regarding any outstanding loans, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.
- 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 insurance company (not agent), type of insurance, policy limit, and deductible, if any.
- the Assessment and Reserve Funding Disclosure Summary form (Civil Code §5570).
In addition to the Report, associations must now send the Annual Policy Statement (“Statement”) within 30-90 days prior to the fiscal year end, in accordance with Civil Code §5310. The Statement is intended to consolidate and provide members with information about their association’s policies. The Statement must include all of the following:
- the name and address of the person designated to receive official communications to the association (Civil Code §4035).
- a statement explaining that a member may submit a request to have notices sent to up to two different addresses (Civil Code §4040b).
- the location, if any, designated for the posting of a general notice (Civil Code §4045(a)(3)).
- notice of a member’s option to receive general notices by individual delivery (Civil Code §4045(b)).
- notice of a member’s right to receive copies of the meeting minutes (Civil Code §4950(b)).
- the assessment collection policy (Civil Code §5730).
- a statement describing the association’s lien enforcement rights.
- any disciplinary enforcement and fine policy (Civil Code §5850).
- a summary of dispute resolution procedures (i.e. ADR & IDR) (Civil Code §5920 and §5965).
- a summary of association architectural approval requirements for physical changes to property (Civil Code §4765).
- the mailing address for overnight payment of assessments (Civil Code §5655).
- any other information that is required by law or the governing documents, or that the board determines is appropriate for inclusion.
Associations may send the full Report and Statement, or a summary, to the membership. The summary must include instructions on how to request a complete copy of the report at no cost to the member in at least 10-point boldface type on the first page of the summary (Civil Code §5320). The Report and Statement must be sent by individual delivery, which includes, but is not limited to, first-class mail, registered or certified mail, electronic transmission (if the recipient has consented in writing), or delivery to a secondary address (Civil Code §4040).
Blog post authored by Tinnelly Law Group’s Director of Business Development, Ramona Acosta.
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