Reader Questions - Should Our Assessments Increase?

Hello Mr. Richardson,

Our board is against raising our fees which have been the same for at least 10 years! Obviously we are not keeping up with inflation. According to our reserve study we are over $1000 per unit underfunded. We have [decades old] buildings. My concerns are falling on deaf ears despite the encouragement of our management company to raise fees. I would deeply appreciate your opinion.

J.E., Irvine

Dear J.E.,

Association boards are responsible to budget and spend association funds wisely. If a board decides in advance that it will not increase the budget, it is quite likely such a board has placed as its first priority the artificial preservation of assessments and that the upkeep of the property (and the association’s long-term financial health) is a lower priority.

Properly caring for the common property and keeping vendor expenses flat for over ten years is unbelievable (and not in a good way). Because of the fact of inflation, cost increases should be factored into the healthy HOA budget. Otherwise, the association is probably deferring maintenance, hiring cheap (instead of the most competent and appropriate) vendors, and is not properly funding its reserve account. Such association are not financially healthy and are akin to people who live on credit cards. Such an association eventually has to face a day of unhappy reckoning when the deferred bills all come due and the association is forced to borrow. Qualified and certified managers are trained to prepare budgets and should be heeded in this regard. Maintaining property, keeping up with inflation, and depositing faithfully in reserves are all actions preserving the community’s financial health.

Best to your association,
Kelly

Mr. Richardson,

Our HOA documents state that annual assessments can only increase a maximum of 10% greater than the previous year. The HOA board increased our assessment by almost 20%. The HOA said that they are allowed to exceed the maximum by California Civil Code section 5605(b). Do our CC&R’s need to be revised to acknowledge to homeowners that Civil Code 5605 can void the limitation in our CC&R’s? It sounds like the CC&R’s don’t mean anything, if the HOA board can find unspecified documents to support their wishes; even if the increase is necessary.

Thank you,

C.S., San Diego

Dear C.S.,

It is important for association boards to have some reasonable flexibility in setting HOA budgets and the ability to occasionally adjust the assessments within a reasonable range. In the original Davis-Stirling Common Interest Development Act, effective in 1986, the then-new Civil Code 1366 allowed HOA boards to increase regular assessments by up to 10% per year, regardless of any more strict language in the governing documents. In 1988, it was increased to 20% per year, the amount found today in the Act at Civil Code 5605(b). Your association may have been formed before 1988, since your governing documents use the older limit.

The law changes each year, and so associations often need experienced association attorneys to help update the HOA on which portions of the governing documents are in effect changed by actions of the Legislature or courts. This is one reason why associations with older documents may find it worthwhile to undergo the effort and expense to update CC&Rs and bylaws.

Thanks,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.