Common interest developments: reserve accounts., the official text

An act to amend, repeal, and add Section 5550 of, and to add Section 5552 to, the Civil Code, relating to common interest developments.

LEGISLATIVE COUNSEL'S DIGEST

Existing law, the Davis-Stirling Common Interest Development Act, governs the management and operation of common interest developments, and requires an association to manage a common interest development, including requiring the association to levy regular and special assessments sufficient to perform its obligations, subject to specified limitations on increases in those assessments. The act requires an association to distribute an annual budget report 30 to 90 days before the end of its fiscal year. Under existing law, that budget report includes, among other things, a summary of the association’s reserve accounts. The act requires an association to perform a study of the reserve account requirements, as defined, and, as part of that study, cause to be conducted a visual inspection of the accessible areas of major components that the association is obligated to repair, replace, restore, or maintain.
This bill would, beginning January 1, 2032, revise the requirement to perform a study of the reserve account requirements to, among other things, include the minimum reserve contribution level to prevent the projected association reserve account balance from falling below zero over the following 30 years. The bill would require an association to fund the reserve account on an annual basis in at least the minimum reserve contribution level. If an association’s reserve balance account is projected to fall below zero at any time over the following 30 years, the bill would require the association to transfer 15% of its gross annual budget to its reserve account each year, as prescribed. If the association is unable to fund the reserve account in at least the minimum reserve contribution level through its gross annual budget, the bill would require the association to levy a reserve funding special assessment, as provided.

The people of the State of California do enact as follows:

SECTION 1.
Section 5550 of the Civil Code is amended to read:
5550.
(a) At least once every three years, the board shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the common interest development, if the current replacement value of the major components is equal to or greater than one-half of the gross budget of the association, excluding the association’s reserve account for that period. The board shall review this study, or cause it to be reviewed, annually and shall consider and implement necessary adjustments to the board’s analysis of the reserve account requirements as a result of that review.
(b) The study required by this section shall at a minimum include:
(1) Identification of the major components that the association is obligated to repair, replace, restore, or maintain that, as of the date of the study, have a remaining useful life of less than 30 years.
(2) Identification of the probable remaining useful life of the components identified in paragraph (1) as of the date of the study.
(3) An estimate of the cost of repair, replacement, restoration, or maintenance of the components identified in paragraph (1).
(4) An estimate of the total annual contribution necessary to defray the cost to repair, replace, restore, or maintain the components identified in paragraph (1) during and at the end of their useful life, after subtracting total reserve funds as of the date of the study.
(5) A reserve funding plan that indicates how the association plans to fund the contribution identified in paragraph (4) 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.
(c) For purposes of this section, “major components” includes gas, water, and electrical service to the extent that the association is responsible for repair or replacement of those lines pursuant to Section 4775.
(d) This section shall remain in effect only until January 1, 2032, and as of that date is repealed.

SEC. 2.
Section 5550 is added to the Civil Code, to read:
5550.
(a) At least once every three years, the association shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the common interest development, if the current replacement value of the major components is equal to or greater than one-half of the gross budget of the association. The association shall review and update this study annually and shall consider and implement necessary adjustments to the association’s funding of the reserve account as a result of that review.
(b) The study required by this section shall at a minimum include:
(1) Identification of the major components that the association is obligated to repair, replace, restore, or maintain that, as of the date of the study, have a remaining useful life of less than 30 years.
(2) Identification of the probable remaining useful life of the components identified in paragraph (1) as of the date of the study.
(3) An estimate of the cost of repair, replacement, restoration, or maintenance of the components identified in paragraph (1).
(4) An estimate of the total annual reserve account transfer necessary to defray the cost to repair, replace, restore, or maintain the components identified in paragraph (1) during and at the end of their useful life, after subtracting total reserve funds as of the date of the study.
(5) A reserve funding plan that indicates how the association plans to fund the reserve account transfer identified in paragraph (4) 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.
(6) The minimum reserve contribution level to prevent the projected association reserve account balance from falling below zero over the following 30 years.
(7) A statement informing the association that, beginning January 1, 2032, state law will require an association to take certain actions if the association projects the reserve account balance to fall below zero over a 30-year period, including transferring a minimum of 15 percent of its gross annual budget to the reserve account and, under specified conditions, levying a reserve funding special assessment, as prescribed.
(c) For purposes of this section, “major components” includes gas, water, and electrical service to the extent that the association is responsible for repair or replacement of those lines pursuant to Section 4775.
(d) This section shall become operative on January 1, 2032.

SEC. 3.
Section 5552 is added to the Civil Code, to read:
5552.
(a) An association shall fund the reserve account on an annual basis in at least the minimum reserve contribution level included in the most recent study of the reserve account requirements pursuant to paragraph (6) of subdivision (b) of Section 5550.
(b) If an association’s reserve account balance is projected pursuant to paragraph (6) of subdivision (b) of Section 5550 to fall below zero at any time over the following 30 years, the association shall transfer a minimum of 15 percent of its gross annual budget to its reserve account each year until its reserve account balance is no longer to projected to fall below zero.
(c) (1) If the association is unable to fund the reserve account in at least the minimum reserve contribution level under subdivision (b) through its gross annual budget, the association shall levy a reserve funding special assessment subject to the same provisions as a standard special assessment in Section 5605.
(2) If the reserve funding special assessment amount in paragraph (1) is insufficient to meet the minimum reserve contribution level due to the cap on special assessments without a vote, the association shall have the membership vote on approving an amount exceeding the cap that is necessary to fund the minimum level.
(d) All funds collected through the reserve funding special assessment shall be deposited in the association’s reserve account and considered reserve funds.
(e) An association shall not levy a reserve funding special assessment more than once every nine years.
(f) This section shall become operative on January 1, 2032.