There is no explicit statutory requirement for an association to keep and maintain a reserve account, though such requirements are commonly contained within the provisions of an association’s CC&Rs or bylaws. Even where such provisions are absent, the requirement to keep and maintain a reserve account is generally recognized to exist by virtue of related requirements found within the Davis-Stirling Act as well as California court decisions:
Required Special Assessments – Boards are required to “exercise prudent fiscal management in maintaining the integrity of the reserve account, and shall, if necessary, levy a special assessment to recover” funds expended from a reserve account. (Civ. Code § 5515(e).) Exercising prudent fiscal management of a reserve account would, by implication, require the establishment and maintenance of a reserve account.
Duty to Levy Assessments – An association has an affirmative duty to “levy regular and special assessments sufficient to perform its obligations under [its] governing documents and [the Davis-Stirling Act].” (Civ. Code § 5600(a); See also “Duty to Levy Assessments.”) Setting aside a portion of assessment funds in order to perform future repairs or replacements for which the association is responsible is arguably necessary in upholding this duty. Where a board fails to do so, it could constitute a breach of the directors’ fiduciary duties:
“…since the Association’s original directors…admittedly failed to exercise their supervisory and managerial responsibilities to assess each unit for an adequate reserve fund and acted with a conflict of interest, they abdicated their obligation as initial directors of the Association to establish such a fund for the purposes of maintenance and repair. Thus, the individual initial directors are liable to the Association for breach of basic fiduciary duties of acting in good faith and exercising basic duties of good management.” (Raven’s Cove Townhomes, Inc. v. Knuppe Dev. Co. (1981) 114 Cal.App.3d 783, 800-801.)
Not Subject to Fee Limitation Provisions – Civil Code Section 5600(b) does not allow for an association to “impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.” In the case of Foothills Townhome Assn. v. Christiansen, a member of the association challenged a special assessment levied by the board to fund the association’s reserve account on the basis that such action violated the fee limitation contained within Civil Code Section 5600(b): the member argued that the special assessment “exceeded the amount necessary to defray the costs for which it [was] levied” because there was no explicit requirement for the reserve account to be funded in the first place. The Court rejected the member’s argument and held that restoring an association’s reserve account was a valid basis for levying the special assessment.
Reserve Study Requirements – The requirement to establish and maintain an adequate reserve account is further supported by the provisions under Civil Code Section 5550. In sum, those provisions require the board to perform reserve studies and to develop a reserve funding plan to address future repairs or replacements of all major elements with an expected remaining life of thirty (30) years or less.
Every member of an association has certain rights to inspect and copy various association records. However, those rights are not absolute, as some records may be validly withheld or redacted by an association. Additionally, an association is entitled to charge a member for certain costs incurred in fulfilling the member’s records request (i.e., copying, mailing and redacting costs); however, the association is generally prohibited from charging the member a fee “that exceeds the amount necessary to defray the costs for which it is levied.” (Civ. Code § 5600(b).)
Copying & Mailing Costs Where records are copied and mailed by an association in satisfaction of a member’s request, the association may charge the member for the direct and actual cost of copying and mailing the requested records. (Civ. Code §§5205(f),4950(a).)
Redacting Costs An association may charge the member “an amount not in excess of ten dollars ($10) per hour, and not to exceed two hundred dollars ($200) total per written request, for the time actually and reasonably involved in redacting an enhanced association record.” (Civ. Code § 5205(g).)
Informing the Member of the Anticipated Costs An association is required to inform the member of the amount of copying and mailing costs, including estimated redacting costs, and the member is required to agree to pay those costs, before providing the member with the requested records. (Civ. Code § 5205(f)-(g).)
Costs for Electronic Transmission of Records A member has the option of receiving specifically identified records “by electronic transmission or machine-readable storage media so long as those records can be transmitted in a redacted format that does not allow the records to be altered.” (Civ. Code § 5205(h).) In such cases, the “cost of duplication shall be limited to the direct cost of producing the copy of a record in that electronic format.” (Civ. Code § 5205(h).)
A member’s right to inspect and copy various association records is not absolute and may be limited in certain circumstances. (See “Records Not Subject to Inspection.”). However, Corporations Code Section 8334 gives each board member (each director of the association) the “absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director.” Thus, unlike regular members of an association, directors generally (1) are not subject to the requirements of Civil Code Section 5205 (i.e., do not have to pay for the costs in producing records), and (2) have broader record inspection rights than regular members (i.e., can inspect executive session minutes).
Limitations Notwithstanding the term “absolute” under Corporations Code Section 8334, a director’s record inspection rights may still be limited in order to avoid conflicts of interest, to protect privacy concerns, and/or to protect the association from tortious acts and breaches of fiduciary duties by the director.
Avoid Conflicts of Interest: “…a corporate director does not have the right to access corporate documents covered by the attorney-client privilege that were generated in defense of a suit for damages that the director filed against the corporation.” (Tritek Telecom, Inc. v. Superior Court(2009) 169 Cal.App.4th 1385, 1387.)
A director’s absolute right to inspect and copy corporate records “is subject to exceptions and may be denied where a disgruntled director announces his or her intention to violate his or her fiduciary duties to the corporation…” (Tritek at 1390.)
Protect Privacy: A director’s record inspection rights may be limited by the association’s duty to protect the privacy rights of its members in their voting decisions. (Chantiles v. Lake Forest II Master HOA(1995) 37 Cal.App.4th 914, 927 (“…the Association had a duty to guard the privacy of rights of its members in their voting decisions…the Association’s refusal to allow [the director] the unfettered access to the ballots which he demands was not unjustified.”).)
Protect from Tortious Acts: “Where the corporation determines that an unfettered inspection [by the director] will result in a tort against the corporation, it may decline the request for inspection.” (Havlicek v. Coast-to-Coast Analytical Services, Inc.(1995) 39 Cal.App.4th 1844, 1856.)
*Evidence must Establish Clear Intent to Commit Tort – The mere possibility that information could be used adversely to the corporation is not by itself sufficient to defeat a director’s inspection rights. The evidence must establish the director’s clear intent to use the information to breach fiduciary duties or otherwise commit a tort against the corporation, such that allowing inspection would produce an “absurd result”. (Fowler v. Golden Pacific Bancorp(2022) 80 Cal.App.4th 205, 211.)
Former Directors A former director loses his/her broad record inspection rights once the former director loses his/her status as a sitting (current) director of the association (i.e., no longer serves on the board.) This is true notwithstanding the fact that the desired record pertains to a decision or action of the former director or of the board while the former director was serving:
“…current director status is required to pursue current inspection rights. This line of cases will not allow enforcement of any absolute director’s right of inspection to a former corporate director, when the reason for the inspection right (holding office and performing fiduciary duties as a director) no longer exists.” (Wolf v. CDS Devco(2010) 185 Cal.App.4th 903, 919.)
Purpose for the Request The member requesting the membership list must state the purpose for the request, which must be reasonably related to his or her interest as a member. (Civ. Code § 5225.) If the board reasonably believes that the list will be used for another purpose, it may deny the member’s request. If the request is denied, in any subsequent action brought by the member pursuant to Civil Code Section 5235 the association will have the burden to prove that the member would have used the list for purposes unrelated to his interest as a member. (Civ. Code § 5225;Tract No. 7260 Association, Inc. v. Parker (2017).)
Liability for Misuse of Membership List The membership list is a corporate asset of the association. (Corp. Code § 8338(a).) Pursuant to Corporations Code Section 8338(a), without consent of the board, the membership list may not be:
(1) Used to solicit money or property unless such money or property will be used solely to solicit the vote of the members in an election to be held by their corporation.
(2) Used for any purpose which the user does not reasonably and in good faith believe will benefit the corporation.
(3) Used for any commercial purpose or purpose in competition with the corporation.
(4) Sold to or purchased by any person.
Any person who misuses a membership list is liable to the association for any damage caused by the misuse, including punitive damages for fraudulent or malicious misuse of the membership list. (Corp. Code § 8338(b); See also “Misuse of Association Records.”) Where the association prevails in an action based upon the misuse of the membership list, the association may recover its costs and expenses, including reasonable attorney’s fees. (Corp. Code § 8338(d).)
Petition to Set Aside Request Where an association believes the membership list will be used for an improper purpose, it may petition the superior court for an order setting aside the demand for the membership list. (Corp. Code § 8331.)
Copying & Mailing Costs The association may bill the requesting member for the direct and actual costs of copying and mailing the membership list. The association must inform the member of the amount of the copying and mailing costs, and the member must agree to pay those costs, before the association copies and mails the membership list. (Civ. Code § 5205(f); See also “Fees & Costs for Records.”)
Email Addresses Member email addresses are included within the scope of information contained on an association’s membership list, where such email addresses “were collected by the association in accordance with Section 4041.” (Civ. Code § 5200(a)(9).) Civil Code Section 4041 addresses the annual notice of owner contact information that each owner is required to submit to the association, and which the association must solicit from all members at least thirty (30) days prior to the distribution of the association’s annual budget report. (Civ. Code § 5200(a)(9).)
Membership List Opt-Out
Any member of the association may opt out of having their contact information included on the association’s membership list by notifying the association in writing of the member’s to be contacted by an alternative process. (Civ. Code § 5220.)
Actions for Misuse of Association Records Where a member sells association records, uses them for a commercial purpose, or uses them for any other purpose not reasonably related to his or her interest as a member, Civil Code Section 5230 allows the association to take legal action against the member for injunctive relief and damages:
“(a) The association records, and any information from them, may not be sold, used for a commercial purpose, or used for any other purpose not reasonably related to a member’s interest as a member. An association may bring an action against any person who violates this section for injunctive relief and for actual damages to the association caused by the violation.
(b) This article may not be construed to limit the right of an association to damages for misuse of information obtained from the association records pursuant to this section or to limit the right of an association to injunctive relief to stop the misuse of this information.” (Civ. Code § 5230(a)-(b).)
Misuse of Member’s Personal Information by Association or Manager An association or its managing agent are prohibited from:
Selling a member’s personal information for any purpose without the consent of the member; (Civ. Code § 5230(c)(1)(A).)
Transmitting a member’s personal information to a thirty party without the consent of the member, unless required to do so by law, including but not limited to situations where the transmission of the information must be made in response to a member’s request to inspect association records as defined under Civil Code Section 5200. (Civ. Code § 5230(c)(1)(B).)
If an association violates the above restrictions, a member may bring an action against the association for injunctive relief and actual damages caused by the violation. If the member’s action is successful, the member is entitled to recover reasonable costs and expenses, including reasonable attorney’s fees. (Civ. Code § 5230(c)(2).)
Recovery of Attorney’s Fees & Costs Where an association is successful in enforcing its rights under Civil Code Section 5230, the association is “entitled to recover reasonable costs and expenses, including reasonable attorney’s fees.” (Civ. Code § 5230(d).)
A member’s right to inspect and copy various association records is not absolute and may be limited by the year the requested record was prepared as well as the contents of the requested record.
Records Which may be Withheld or Redacted The following includes records which are not subject to inspection and/or which may be withheld or redacted pursuant to Civil Code Section 5215:
Information which, if released, is reasonably likely to lead to (1) identity theft (i.e., bank account numbers of members or vendors, social security or tax id numbers, credit card numbers, etc.), (2) fraud in connection with the association, or (3) compromising the privacy of an individual member of the association. (Civ. Code § 5215(a)(1),(2),(4); Civ. Code § 5215(a)(5)(c); See also Chantiles v. Lake Forest II Master HOA (1995) 37 Cal.App.4th 914.)
Association employee information (i.e., name, social security number, or other personal information), except for employee compensation information to be set forth by job classification or title. (Civ. Code § 5215(b).)
Information which is privileged under law (i.e., documents subject to attorney-client privilege, documents relating to litigation in which the association is or may become involved, confidential settlement agreements, etc.). (Civ. Code § 5215(a)(3); See also Smith v. Laguna Sur Villas Community Assn. (2000) 79 Cal.App.4th 639.)
Records of goods or services provided a la carte to individual members for which the association received monetary consideration other than assessments. (Civ. Code § 5215(a)(5)(A).)
Records of disciplinary actions, collection activities, or payment plans of members other than the member requesting the records. (Civ. Code § 5215(a)(5)(B).)
Interior architectural plans, including security features, for individual homes. (Civ. Code § 5215(a)(5)(F).)
Written Explanation for Withholding or Redacting Records An association that denies or redacts records must, if so requested by the requesting member, “provide a written explanation specifying the legal basis for withholding or redacting the requested records.” (Civ. Code § 5215(d).)
Costs of Redacting Records Where any record requested by a member will need to be redacted before being produced, the association may charge the member “an amount not in excess of ten dollars ($10) per hour, and not to exceed two hundred dollars ($200) total per written request, for the time actually and reasonably involved in redacting an enhanced association record.” (Civ. Code § 5205(g).) The association is required to inform the member of the estimated redacting costs, and the member is required to agree to pay those costs, before redacting the records and providing them to the member. (Civ. Code § 5205(g); See also “Member Record Inspection Rights” and “Fees & Costs for Records.”)
Limitation of Liability “No association, officer, director, employee, agent or volunteer of an association shall be liable for damages to a member of the association or any third party as the result of identity theft or other breach of privacy because of the failure to withhold or redact that member’s information under this subdivision unless the failure to withhold or redact the information was intentional, willful, or negligent.” (Civ. Code § 5215(c).)
Minutes of Board and Member Meetings Minutes of board meetings and member meetings must be made available to members within thirty (30) calendar days following the meeting and distributed upon request by a member. (Civ. Code § 4950.)
Minutes Prepared During Current Fiscal Year – must be provided to the member within ten (10) days following the association’s receipt of the member’s request. (Civ. Code § 5210(b)(1).)
Minutes Prepared During Prior Years – must be provided to the member within thirty (30) calendar days following the association’s receipt of the member’s request. (Civ. Code § 5210(b)(2).)
Minutes of Committee Meetings with Decisionmaking Authority Minutes of committees with “decisionmaking authority” for meetings commencing on or after January 1, 2007 must be made available within fifteen (15) calendar days following approval. (Civ. Code § 5210(b)(5); See also “Committee Meeting Minutes.”)
Fiscal Records & Governing Documents Any statement or record available pursuant to Civil Code Section 5300 (insurance, budget, financial statements, etc.) or pursuant to Civil Code Section 4525 (governing documents, construction defects, assessment changes, etc.) must be made available within the specified time frame:
Records for Current Fiscal Year – must be provided within ten (10) business days following the association’s receipt of the member’s request. (Civ. Code § 5210(b)(1).)
Records for Prior Fiscal Years – must be provided within thirty (30) calendar days following the association’s receipt of the member’s request. (Civ. Code § 5210(b)(2).)
A member of an association has certain rights to inspect and copy various association records. Those rights cannot be limited by contract or by the association’s articles or bylaws. (Corp. Code § 8313.) However, not all records are subject to inspection and copying by a member. Those limitations, along with the requirements and procedures applicable to requesting and inspecting association records, are principally governed by Civil Code Sections 5205, 5210 and 5215.
Records Subject to Inspection
Association records are broken down into two (2) categories: (1) “association records” (Civ. Code § 5200(a)), and (2) “enhanced association records” (Civ. Code § 5200(b)). “Association records” include such items as annual budget reports and financial statements, income tax filings, board meeting minutes (except for executive session minutes), and executed contracts. “Enhanced association records” include such items as invoices, canceled checks, purchase orders, credit card statements, and reimbursement requests submitted to the association. (See “Records Subject to Inspection.”)
Records Not Subject to Inspection
Many association documents contain sensitive, confidential or privileged information. While such documents may fall within the purview of an “association record” or an “enhanced association record,” they may be withheld or redacted. (Civ. Code § 5215; See also “Records Not Subject to Inspection.”)
Proper Purpose Requirement
A member’s request to inspect association records must be for a proper purpose:
“…association records, and any information from them, may not be sold, used for a commercial purpose, or used for any other purpose not reasonably related to a member’s interest as a member.” (Civ. Code § 5230; See also Tract No. 7260 Association, Inc. v. Parker (2017).)
This proper purpose requirement is also referenced in Corporations Code Sections 8330 and 8333. A member’s misuse of records may subject the member to legal action by the association for injunctive relief and damages. (Civ. Code § 5230(b); See also “Misuse of Association Records.”)
Right to Designate Agent
A member may designate another person to inspect and copy the specified records on the member’s behalf. (Civ. Code § 5205(b); Corp. Code § 8311.) Such a designation must be made in writing. (Civ. Code § 5205(b).)
Costs of Copying, Mailing & Redacting Records
An association may charge the member for the direct and actual cost of copying and mailing the requested records. (Civ. Code §§ 5205(f), 4950(a); See also “Fees & Costs for Records.”) An association may also charge the member “an amount not in excess of ten dollars ($10) per hour, and not to exceed two hundred dollars ($200) total per written request, for the time actually and reasonably involved in redacting an enhanced association record.” (Civ. Code § 5205(g).) An association is required to inform the member of the amount of copying and mailing costs, including estimated redacting costs, and the member is required to agree to pay those costs, before providing the member with the requested records. (Civ. Code § 5205(f)-(g).)
Electronic Production of Records
A member has the option of receiving the requested records “by electronic transmission or machine-readable storage media as long as those records can be transmitted in a redacted format that does not allow the records to be altered.” (Civ. Code § 5205(h).) Where records are delivered by such means, “[t]he cost of duplication shall be limited to the direct cost of producing the copy of a record in that electronic format.” (Civ. Code § 5205(h).)
Location for Inspecting & Copying Records
Records must be made available at the association’s onsite business office or, if there is none, at a location agreed upon by the member and the association. (Civ. Code § 5205(c)-(d).) If there is no onsite business office and no alternate location can be agreed upon, or if the member submits a written request directly to the association for copies of the records, the association may mail them to the member by individual delivery within the applicable deadlines for producing the requested records. (Civ. Code § 5205(e).)
Enforcement of Inspection Rights
If an association wrongfully denies a member’s valid request for records, the member may bring a lawsuit (including a small claims suit where possible) against the association to enforce the member’s inspection rights. (Civ. Code § 5235(a),(c).) If the association is found to have unreasonably withheld access to association records, the member is entitled to reasonable costs and expenses, including reasonable attorney’s fees, and the association may be further subject to a civil penalty of up to five hundred dollars ($500) for the denial of each separate written request. (Civ. Code § 5235(a).) If the association prevails, and if the court finds the member’s action to have been “frivolous, unreasonable, or without foundation,” the association may recover its costs from the member. (Civ. Code § 5235(c).)
Most of the books, records and items of information maintained and generated by an association during the course of its operations are subject to inspection and copying by a member. (Civ. Code § 5205;See also “Member Record Inspection Rights.”) The records of an association that are subject to inspection and copying are broken down into two (2) main categories: “association records” and “enhanced association records.” (Civ. Code § 5200.)
“Association Records” Civil Code Section 5200(a) defines “association records” to include all of the following:
Interim financial statements, periodic or as compiled, containing any of the following: (a) balance sheet; (b) income and expense statement; (c) budget comparison; (d) a “general ledger” of transactions over a period of time. (Civ. Code § 5200(a)(3); See also “Financial Statement.”)
Returned ballots, signed voter envelopes, the voter list of names, parcel numbers, and voters to whom ballots were to be sent, proxies, and the candidate registration list. Signed voter envelopes may be inspected but may not be copied. (Civ. Code § 5200(c).)
“Enhanced Association Records” Civil Code Section 5200(b) defines “enhanced association records” to include “invoices, receipts and canceled checks for payments made by the association, purchase orders approved by the association, bank account statements for bank accounts in which assessments are deposited or withdrawn, credit card statements for credit cards issued in the name of the association, statements for services rendered, and reimbursement requests submitted to the association.” Anything which constitutes an “enhanced association record” is also an “association record.” (Civ. Code § 5200(a)(13).)
Exception: Inspector’s reports compiled pursuant to Section 5551 (pertaining to exterior elevated elements) must be made available for inspection at least two (2) inspection cycles. (Civ. Code § 5210(a)(3).)
Request for Inspection & Production Requirements
Subject to certain limitations, members and directors of an association have varying rights to inspect association records. (See “Member Record Inspection Rights;” See also “Director Record Inspection Rights.”)
Civil Code Section 5300 requires an association to prepare and distribute to its members an annual budget report. The annual budget report serves as a consolidated disclosure statement which must include all of the following information, as well as any additional requirements imposed by the association’s governing documents: (Civ. Code § 5300(b)(1)-(9).)
Operating Budget – a pro forma operating budget, showing the estimated revenue and expenses on an accrual basis.
Reserve Funding Plan Summary – a summary of the reserve funding plan adopted by the board, as specified in Civil Code Section 5550(b)(5). The summary must include notice to the members that the full reserve plan is available upon request, and that the association must provide the full reserve plan to any member upon request.
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 thirty (30) years or less, including a justification for the deferral or decision to not undertake the repairs or replacement.
Anticipated Special Assessments – a statement as to whether the board, consistent with the reserve funding plan adopted pursuant to Civil Code Section 5560, 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 reserve funds for such repair, replacement or restoration. If so, the statement must also set out the estimated amount, commencement date, and duration of the anticipated special assessment.
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.
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.
Outstanding Loans– a statement as to whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.
Insurance Summary – a summary of the association’s property, general liability, earthquake, flood, and fidelity insurance policies. For each policy, the summary must include the name of the insurer, the type of insurance, the policy limit, and the amount of the deductible, if any. If this information is specified in an insurance policy’s declaration page, the association may satisfy its obligations to disclose that information by including copies of the declaration page with the annual budget report. Additionally, the insurance summary must contain, in at least 10-point boldface type, the statement provided under Civil Code Section 5300(b)(9). (See also “Insurance Disclosures.”)
FHA Status – if the association is a condominium community, a statement as to whether the association is a Federal Housing Administration (FHA)-approved condominium project. The disclosure must contain, in at least 10-point font on a separate piece of paper, the statement provided under Civil Code Section 5300(b)(10).
VA Status – if the association is a condominium community, a statement as to whether the association is a federal Department of Veterans Affairs (VA)-approved condominium project. The disclosure must contain, in at least 10-point font on a separate piece of paper, the statement provided under Civil Code Section 5300(b)(10).
Additionally, the assessment and reserve funding disclosure summary form, prepared pursuant to Civil Code Section 5570, must accompany each annual budget report or summary of the annual budget report that is distributed to a member. (Civ. Code § 5300(e); See also “Reserve Disclosures.”)
When Distributed
The annual budget report must be distributed to the members within thirty (30) to ninety (90) days before the end of the association’s fiscal year, regardless of any contrary provision contained in an association’s governing documents. (Civ. Code § 5300(a).)
How Distributed The annual budget report must be distributed to all members by individual delivery. (Civ. Code §§ 5300(c), 5320(a).) An association is permitted to distribute the annual budget report in one of the following forms: (Civ. Code § 5320(a)(1)-(2).)
The full annual budget report; or
A summary of the annual budget report. The summary must include a general description of the content of the annual budget report, as well as instructions on how the member may request a complete copy of the annual budget report at no cost to the member. The content description and instructions must be printed in at least 10-point boldface type on the first page of the summary.
Notwithstanding the above, if a member has requested to receive association reports in full, the association must deliver the full annual budget report to that member, rather than the summary referenced above. (Civ. Code § 5320(b).)
