Year End Planning – Is Your HOA Issuing Both Annual Disclosure Packets?Sep 12, 2022
One of the many improvements made by the Legislature in 2012 to the Davis-Stirling Act was to group a variety of required disclosures into two very important disclosure packets – the “Annual Budget Report” of Civil Code Section 5300 and the “Annual Policy Statement” of Civil Code Section 5310. These important disclosures are still often overlooked or incomplete.
Until 2014, budgets were required to be issued no later than 30 days before the new fiscal year – or in that next year the board could not increase assessments or impose any special assessment without a membership vote. However, in 2014 this requirement was greatly expanded. Civil Code Section 5605(a) requires the budget and six other Annual Budget Report items be timely prepared and sent to members or the board must seek a membership vote for new or increased assessments during that next year.
Here is a synopsis of the Annual Budget Report items:
- Summary of the association’s reserves;
- Summary of the board’s plan to catch up to funding in the reserve study recommendation;
- Disclosure of any board decision to defer, not repair, or not replace any major common area component, including an explanation of reasons;
- Disclosure if the board anticipates the need for a special assessment to replace major components or to fund the reserves account, including the projected amount and starting and ending date of the assessment;
- Statement as to how the board will fund reserves;
- General statement describing how reserves are calculated and established;
- Disclosure of any current HOA loans of over one year in length, including specifics as to loan terms and status;
- Summary of the HOA’s insurance policies;
- For condominium projects, a statement indicating whether the HOA is approved for FHA or VA loans;
- Current complete “Charges For Documents Provided” disclosure (from Civil Code 4528).
Assessment and Reserve Funding Disclosure Summary form required by Civil Code 5570. The Annual Policy Statement, required by Civil Code Section 5310, must be sent to members within 30-90 days before the new fiscal year, and must include:
- Name and address of the HOA’s designee to receive communications;
- Announcement that members may request HOA notices sent to up to two different specified addresses;
- The location designated for posting of general notices;
- Announcement that members may ask to receive general notices individually;
- Notice of a member’s right to receive copies of meeting minutes;
- Statements of assessment collection policies and describing the association’s policies and practices pursuing delinquent assessments;
- A statement describing the association’s discipline policy, if any, including any schedule of penalties for violations;
- A summary of the HOA’s internal dispute resolution procedures;
- A summary of any requirements for association approval of a physical change to property;
- The mailing address for overnight payment of assessments; and
- Any other information required by law or the governing documents or desired by the board to be disclosed.
Under Civil Code Section 5320, the full packets or a summary must be sent individually to all members. Any member can request a full copy.
Because of the importance of these disclosure packets, management company contracts should state that the manager helps with not only the budget but also to assemble the complete Annual Budget Report and Annual Policy Statement packets.
To read these laws in full, visit www.leginfo.legislature.ca.gov.
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