Reserve Funding Plan Archives

Would require the association to funds reserves in at least the minimum reserve contribution level as specified in the reserve study.

Current Status: Pending

FindHOALaw Quick Summary:

The Davis-Stirling Common Interest Development Act (“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, 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, amend Civil Code Section 5550 to 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 add Civil Code Section 5552 to require an association to fund the reserve account on an annual basis in at least the minimum reserve contribution level. If the association is unable to fund the reserve account in at least the minimum reserve contribution level without exceeding the above-described specified limitations on increases on assessments, then, notwithstanding those specified limitations, the bill would require the association to levy a reserve special assessment in an amount necessary to allow the association to fund to minimum contribution level without a reserve special assessment within 3 fiscal years, as provided.

**AB-2050 was amended on April 16, 2026, to limit a reserve funding special assessment to no more than once every nine years:
(b) (1) If the association is unable to fund the reserve account in at least the minimum reserve contribution level without exceeding the limitations on assessment increases set forth in Section 5605, then, notwithstanding Section 5605, the association shall levy a reserve special assessment in an amount necessary to allow the association to fund to minimum contribution level without a reserve special assessment within three nine fiscal years.
(2) All funds collected through the reserve special assessment shall be deposited in the association’s reserve account and considered reserve funds. The amount of the reserve funding special assessment shall be the amount necessary to prevent the projected association reserve account balance from falling below zero over the following 30 years.
(3) An association shall not levy a reserve funding special assessment more than once every three nine years.

View more info on AB 2050
from the California Legislature's website

Would redefine a managing agent and limit the association’s ability to use reserve funds for litigation.

Current Status: Pending

FindHOALaw Quick Summary:

The Davis-Stirling Common Interest Development Act (“Act”), provides for the creation and regulation of common interest developments. Existing civil law defines an agent as one who represents another, called the principal, in dealings with third persons.

This bill would amend Civil Code Section 2295 to revise the above-described definition of agent to include a person or company that facilitates activities pursuant to specified provisions of the act and that is required to provide a fiduciary duty to the board of a homeowner’s association and its members.

Existing law defines “management services” for purposes of a common interest development to mean specified acts performed or offered to be performed in an advisory capacity for an association, including implementing provisions of governing documents for the operation of the common interest development.

This bill would amend Business & Professions Code 11500 to revise the above definition to specify that it means acts performed or offered to be performed by an agent, as defined above, in an advisory capacity for an association.

Existing law defines “professional association for common interest development managers” to mean an organization that meets specified criteria, including having at least 200 members or certificants who are common interest development managers in California.

This bill would amend Business & Professions Code 11500 to revise that definition to specify that it means an organization that employees an agent or agents, as defined, and that meets the above mentioned criteria.

Existing law requires the owner of a separate interest in a common interest development to provide specified documents to a prospective purchaser as soon as practicable before the transfer of title or execution of a real property sales contract, including a copy of all the governing documents for the association.

This bill would amend Civil Code Section 4525 to require the owner to provide additional information to a prospective purchaser, including, among other things, a separate disclosure regarding exterior elements and units requiring imminent repairs, if the association employs an association manager or management company.

Existing law prohibits the board of a common interest development from expending reserve funds for other than specified purposes, including repair, replacement, or maintenance of, or litigation involving major components, that the association is obligated to repair, replace, or maintain, and for which the reserve fund was established, subject to certain exceptions.

This bill would amend Civil Code Section 5510 to prohibit the board from expending reserve funds for other litigation, legal services, or to threaten litigation involving any real property owner of record or relative of the real property owner of record that is a member of the homeowner’s association.

The bill would make various other related and conforming changes to Civil Code Sections 5550, 5551, 5560, and 5565 regarding reserve studies and exterior elevated elements.

**SB-1238 was amended on April 16, 2026, to remove the separate disclosure regarding exterior elevated elements and to, instead, direct the purchaser to the location on the first page of the inspector’s report. The bill was further amended to remove the prohibition of expending reserve funds for litigation purposes:

(12)If the association employs an association manager or association management company, when requested by the owner of record or prospective purchaser, the association shall separately disclose the following information:

(A)The number of exterior elements, and the number of units, requiring imminent repairs necessary to protect life that were identified in the inspection conducted pursuant to clauses (i) and (ii) of subparagraph (F) of paragraph (5) of subdivision (e) of Section 5551.

(B)The number of exterior elements, and the number of units, requiring isolated balcony maintenance and repair issues that require preventative maintenance or cosmetic wear that do not constitute critical repairs and do not require immediate attention according to the inspection report pursuant to clauses (iii) and (iv) of subparagraph (F) of paragraph (5) of subdivision (e) of Section 5551.

~~(13)Any balcony in the report that requires ten thousand dollars ($10,000) or more worth of repairs.~~

(14)If requested by the owner of record, prospective purchaser, or a residential mortgage lender in connection with an application to refinance an existing loan connected to the transfer or sale of real property, the association manager or association management company shall provide, upon request by an owner of record, a separate disclosure providing a uniform overview of the association or condominium complex in relation to the federal lending rule defining “critical repair” and shall provide information on whether:

(B) The following information, if separately requested by the purchaser:
(i) The location on the first page of the report where the following information may be found:
(I) The number of exterior elevated elements, and the number of units identified pursuant to clause (i) of subparagraph (F) of paragraph (5) of subdivision (e) of Section 5551.
(II) The number of exterior elevated elements identified pursuant to clause (ii) of subparagraph (F) of paragraph (5) of subdivision (e) of Section 5551.
(III) The number of exterior elevated elements identified pursuant to clause (iii) of subparagraph (F) of paragraph (5) of subdivision (e) of Section 5551.
(ii) Any balcony identified in the report as needing repairs that exceed ten thousand dollars ($10,000).

(b) The board shall not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established.
(c) The board shall not expend funds designated as reserve funds for other litigation or legal services, or to threaten litigation involving any real property owner of record or relative of the real property owner of record that is a member of the homeowner’s association. services that are not identified in subdivision (b).

**AB-1238 was amended on April 23, 2026 to require anyone facilitating the annual budget report, annual policy statement, or review of association operating accounts owes a duty of care to the association:

5390. Any person or entity that facilitates activities pursuant to Sections 5300, 5310, and 5500, or other activities pursuant to this part that are authorized by the board, owes a duty of care that is prudent and provides the highest good faith effort to the association and its members

View more info on SB 1238
from the California Legislature's website

Would prohibit a board from imposing a regular assessment that is more than the regular assessment for the association’s preceding year, adjusted for inflation, without the approval of the majority of a quorum members.

Current Status: Pending

FindHOALaw Quick Summary:

Existing law requires an association to prepare an annual budget report and a policy statement. Existing law also requires the association to either deliver to all members the full report or a summary of the report that includes specified information, on the first page, whenever the annual budget report or a policy statement is prepared.

This bill would amend Civil Code Section 5300 to require the annual budget report to include a high-level summary breakdown of what the regular assessments fund and a statement regarding compensation of a management company. The bill would also amend Civil Code Section 5320 to require a summary of an annual budget or policy statement to also include a high-level breakdown that describes what the regular assessments fund.

Existing law prohibits increases in regular assessments for any fiscal year, unless the board complies with certain requirements, including certain information in its annual budget report. Existing law prohibits an association from increasing regular assessments by more than 20 percent, without the approval of a majority of a quorum of members.

This bill would amend Civil Code Section 5605 to prohibit an association from increasing a regular assessment, unless the board includes the above-referenced information pertaining to regular assessments. The bill would, instead, prohibit a board from imposing a regular assessment for the association’s preceding year, adjusted for inflation, without the approval of the majority of a quorum members.

Existing law requires the association to notify a member 10 days before a meeting to consider or impose discipline on a member, or a monetary charge, as a means of reimbursing the association for costs incurred by the association in the repair of damage to the common area and facilities caused by a member. Existing law also requires the notification to include, among other information, the nature of the alleged violation, or nature of the damage to the common area and facilities.

This bill would add Civil Code Section 5860 to require the association to make any physical evidence used to determine a violation of the governing documents has occurred available to the member at least 5 business days before the hearing or deadline for the member’s response, if the association seeks to impose a monetary penalty against a member for violation of the governing documents.

View more info on SB 1007
from the California Legislature's website

Related Links

AB 2912 Signed! Significant Changes to HOA Financial Review and Insurance Requirements Published on HOA Lawyer Blog (September 20, 2018) AB 1101 Signed! Welcome Clarity to HOA Financial Protection Requirements Published on HOA Lawyer Blog (October 2021)

An association’s “reserve account” means both of the following:

“Moneys that the board has identified for use to defray the future repair or replacement of, or additions to, those major components that the association is obligated to maintain.” (Civ. Code § 4177(a).)

“The funds received, and not yet expended or disposed of, from either a compensatory damage award or settlement to an association from any person for injuries to property, real or personal, arising from any construction or design defects.” (Civ. Code § 4177(b).)

The reserve account is thus separate and distinct from the association’s operating account that contains funds used to carry out the association’s day-to-day operations.

Withdrawal, Spending & Disclosure Requirements
Boards are required to “exercise prudent fiscal management in maintaining the integrity of the reserve account.” (Civ. Code § 5515(e).) Failing to do so could not only jeopardize the financial viability of the association and the property values of its members, but could also constitute a breach of the board’s fiduciary duties. (Raven’s Cove Townhomes, Inc. v. Knuppe Dev. Co. (1981) 114 Cal.App.3d 783, 800-801.)

Associations are therefore subject to numerous statutory requirements that serve to:

Limit the purposes for which funds may be expended from the reserve account;
Regulate the procedure through which a board may authorize the temporary transfer (borrowing) of funds from the reserve account without the membership’s approval; and
Require every association to perform a reserve study, and to then use that information to prepare a reserve funding plan and make various reserve disclosures to the association’s membership.

Financial Transfers Requiring Written Board Authorization
Transfers from the association’s reserve account over certain thresholds require written board authorization. (See “Financial Transfers Requiring Written Board Authorization.”)

The health of a HOA’s reserve account is vital to protecting the financial viability of the association and the property values of its members. HOAs are therefore required to perform reserve studies, make various reserve disclosures, and are subject to limitations on the purposes for which funds may be expended from the reserve account.

Spending Restrictions
A board may not spend reserve funds “for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established.” (Civ. Code § 5510(b).)

Exception: Temporary Transfer (Borrowing) of Reserve Funds
Notwithstanding the above, a board may authorize the temporary transfer of funds from the reserve account to the association’s operating account in order to “meet short-term cash flow requirements or other expenses” without a vote of the membership. (Civ. Code § 5515(a).) The procedure through which the board may validly authorize such a transfer is subject to several requirements (i.e., provide notice of the intent to consider the transfer, issue a written finding as to why the transfer is needed and how the borrowed funds will be restored within one (1) year, etc.). (See “Borrowing Reserve Funds (Reserve Transfers).”)

Signature Requirement
The withdrawal of funds from the reserve account requires the signatures of at least two (2) persons. Those persons must either both be directors, or one officer who is not a director and one director. (Civ. Code § 5510(a).)

The California Bureau of Real Estate (CalBRE) issued a warning in 2012 in response to a growing number of HOAs with inadequate reserve funds and the resulting problems encountered by those HOAs and their members (i.e., reduced maintenance capabilities, special assessment problems, declining property values, difficulties in securing loans, etc.). These concerns motivated the California Legislature to, in addition to the pre-existing obligation for HOAs to perform reserve studies, increase the number of disclosures HOAs must make on an annual basis regarding their reserve accounts.

Disclosures
The required reserve disclosures are provided to the association’s membership as part of the association’s annual budget report that is prepared pursuant to Civil Code Section 5300, and include all of the following:

Reserve Summary – the association’s reserve summary prepared pursuant to Civil Code Section 5565. (Civ. Code § 5300(b)(2).) The reserve summary is used to disclose the level of deficiencies in the association’s reserves expressed on a per unit basis. (See “Reserve Summary.”)
Reserve Funding Plan – a summary of the reserve funding plan adopted by the board pursuant to Civil Code Section 5550(b)(5). (Civ. Code § 5300(b)(3).) The reserve funding plan indicates the way in which the association will fund the required annual contribution to the reserve account, and includes a schedule of the date and amount of any increases in regular or special assessments that will be needed to sufficiently fund the reserve funding plan. (See “Reserve Funding Plan.”) The summary of the reserve funding plan must also include a notice to members that the full reserve funding plan is available upon request. (Civ. Code § 5300(b)(3).)
Deferred Maintenance Items – 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.” (Civ. Code § 5300(b)(4).)
Anticipated Special Assessments – a statement as to whether the board, consistent with the reserve funding plan, “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.” (Civ. Code § 5300(b)(5).)
Reserve Funding Mechanisms – a statement as to the mechanism(s) 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. (Civ. Code § 5300(b)(6).)
Procedures for Calculation and Establishment of Reserves – a general statement addressing the procedures used for the calculation and establishment of those reserves to defray the future repair, replacements, or additions to those major components that the association is obligated to maintain. The statement must include, at the least, reserve calculations using the formula described in Civil Code Section 5570(b)(4), and may not assume a rate of return on cash reserves in excess of two percent (2%) above the discount rate published by the Federal Reserve Bank of San Francisco at the time the calculation was made. (Civ. Code § 5300(b)(7).)
Assessment and Reserve Funding Disclosure Summary form – the annual budget report (whether delivered in full or in summary form) must also be accompanied by the Assessment and Reserve Funding Disclosure Summary form that is prepared pursuant to Civil Code Section 5570. (Civ. Code § 5300(e).)

Disclosure Timeframe
The above disclosures that are included within the annual budget report must be distributed to the association’s members within thirty (30) to ninety (90) days before the end of the association’s fiscal year, regardless of any provisions to the contrary contained in the association’s governing documents. (Civ. Code § 5300(a).)

Included within an association’s annual budget report is a reserve summary that is prepared pursuant to Civil Code Section 5565. (Civ. Code § 5300(b)(2).)

General Requirements
Pursuant to Civil Code Section 5565, the reserve summary (1) must be based on the association’s most recent reserve study, (2) must be based only on assets held in cash or cash equivalents, and (3) must be printed in boldface type, and include all of the following:

Current Estimates of Major Components – the current estimated replacement cost, estimated remaining life, and estimated useful life of each major component. (Civ. Code § 5565(a).)
Cash Amounts – as of the end of the fiscal year for which the reserve study is prepared, the reserve summary must include: (1) the current estimate of the amount of cash reserves necessary to repair, replace, restore or maintain major components, (2) the current amount of accumulated cash reserves actually set aside for those purposes, and (3) if applicable, the amount of funds received by the association in connection with a construction defect action. (Civ. Code § 5565(b).)
Percentage Funding – the percentage that the amount of cash reserves actually set aside for the repair, replacement, restoration or maintenance of major components equals the estimated amount of cash reserves necessary for those purposes. (Civ. Code § 5565(c).)
Reserve Deficiency – the current deficiency in reserve funding expressed on a per unit basis. This figure is calculated by subtracting the amount of cash reserves actually set aside for the repair, replacement, restoration or maintenance of major components from the estimated amount of cash reserves necessary for those purposes, and then dividing that result by the number of separate interests within the association. This calculation method may vary somewhat if the association has variable, as opposed to uniform, assessments. (Civ. Code § 5565(d).)

Inadmissible as Evidence of Improper Financial Management
The reserve summary is generally not admissible as evidence to show improper financial management on the part of the association. (Civ. Code §5300(d).)

Subject to certain limited exceptions, every association is required to prepare a reserve study at least once every three (3) years with a review to be conducted annually to determine if adjustments are necessary to the association’s reserve account requirements. (Civ. Code §§ 5300(b), 5550(a).) One item of information that must be included within a reserve study is the reserve funding plan. (Civ. Code § 5550(b)(5).)

Purpose
As a component of the reserve study, the association is required to estimate the “total annual contribution” to the reserve account necessary to “defray the cost to repair, replace, restore, or maintain” the major components for which the association is responsible and which have a remaining useful life of less than thirty (30) years. (Civ. Code § 5550(b).) The way in which that “annual contribution” will be funded is indicated by the reserve funding plan. (Civ. Code § 5550(b)(5).)

Schedule of Required Assessment Changes
The reserve funding plan must include a “schedule of the date and amount of any change in regular or special assessments that would be needed to sufficiently fund the reserve funding plan.” (Civ. Code § 5560(a).)

Procedural Requirements

Adopted at Open Board Meeting – The reserve funding plan must be adopted at an open board meeting. (Civ. Code § 5560(b).)
Assessment Increases and Limitations – If the board determines that an increase in regular or special assessments is necessary to fund the reserve funding plan, any such increase is subject to the provisions found within Civil Code Section 5605 (i.e., the board may not, without membership approval, increase regular assessments by more than twenty percent (20%), or special assessments by more than five percent (5%)). (Civ. Code § 5560(c); See also “Limitations on Assessment Increases.”)

Disclosures
Information from the reserve funding plan is disclosed in the association’s annual budget report, as well as the association’s Assessment and Reserve Funding Disclosure Summary form prepared pursuant to Civil Code Section 5570. (See “Annual Budget Report” and “Reserve Disclosures.”)

Summary of Plan Included within Annual Budget Report
A summary of the reserve funding plan must be distributed to the association’s members each year as part of the annual budget report. (Civ. Code § 5300(b)(3).)

Right to Request Full Plan
The summary of the reserve funding plan must include a notice to members that the full reserve funding plan is available upon request, and that the association must provide the full reserve funding plan to any member upon request. (Civ. Code § 5300(b)(3).)

Except as provided below, all associations are required to prepare a reserve study at least once every three (3) years with a review to be conducted annually to determine if adjustments are necessary to the association’s reserve account requirements. (Civ. Code §§ 5300(b), 5550(a).) Once the study is completed, the study is used to prepare and publish a reserve funding plan. The reserve funding plan is in turn used to prepare and publish the association’s annual budget report that includes various reserve disclosures.

Preparation/Review Requirements & Exceptions
Every association is required to prepare a reserve study at least once every three (3) years:

“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…” (Civ. Code § 5550(a).)

Exceptions
The only instances where an association would not be required to prepare a reserve study are when:

(1) There are no common area components that the association is obligated to repair, replace or maintain;

(2) The association is an industrial or commercial common interest development, not a residential common interest development; or

(3) The “current replacement value of the major components” is less than “one-half of the gross budget of the association, excluding the association’s reserve account for that period.” (Civ. Code § 5550(a).)

Annual Review & Adjustments by Board
The board is also required to “review [the reserve] 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.” (Civ. Code § 5550(a).)

Required Contents of Reserve Study
Civil Code Section 5550(b) sets forth the following five (5) items of information which, at a minimum, must be included within a reserve study:

Major Components – The reserve study must identify 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 thirty [30] years.” (Civ. Code § 5550(b)(1).)
Remaining Useful Life of Major Components – The reserve study must identify the “probable remaining useful” of the major components identified in item #1 (above) as of the date of the study. (Civ. Code § 5550(b)(2).)
Estimated Costs of Major Components – The reserve study must include an “estimate of the cost of repair, replacement, restoration, or maintenance” of the components identified in item #1 (above). (Civ. Code § 5550(b)(3).)
Estimated Annual Contribution to Reserve Account – The reserve study must include an “estimate of the total annual contribution necessary to defray the cost to repair, replace, restore, or maintain” the components identified in item #1 (above) “during and at the end of their useful life, after subtracting total reserve funds as of the date of the study.” (Civ. Code § 5550(b)(4).)
Reserve Funding Plan – The reserve study must also include a “reserve funding plan that indicates how the association plans to fund the contribution” identified in item #4 (above) 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.” (Civ. Code § 5550(b)(5); See also “Reserve Funding Plan.”)

Utility Services as “Major Components”
The term “major components” for the purposes of Section 5550 includes gas, water and electrical service to the extent the association is responsible for repair or replacement of those lines pursuant to Civil Code section 4775. (Civ. Code § 5550(c).)

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Tag Archives: Reserve Funding Plan

AB-2050 (Caloza) Common interest developments: reserve accounts.

Current Status: Pending

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SB-1238 (Wahab) Common interest developments: management.

Current Status: Pending

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SB-1007 (Menjivar) Common interest developments: annual reports: assessments: discipline.

Current Status: Pending

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SB-546 (Grayson) Common interest developments: accounting.

Current Status: Dead

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Reserve Account (Generally)

Reserve Account Expenditures

Reserve Disclosures

Reserve Summary

Reserve Funding Plan

Reserve Study