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DAVIS-STIRLING
ACT
Civil Code
§1365. Financial Records and Reporting
Unless the governing documents impose more stringent standards, the association
shall prepare and distribute to all of its members the following documents:
(a) A pro forma operating budget, which shall include all of the
following:
(1) The estimated revenue and expenses on an accrual basis.
(2) A summary of the association's reserves based upon the
most recent review or study conducted pursuant to
Section 1365.5, based only on assets
held in cash or cash equivalents, which shall be printed in boldface type
and include all of the following:
(A) The current estimated replacement cost, estimated
remaining life, and estimated useful life of each major component.
(B) As of the end of the fiscal year for which the study
is prepared:
(i) The current estimate of the amount of cash
reserves necessary to repair, replace, restore, or maintain the
major components.
(ii) The current amount of accumulated cash reserves
actually set aside to repair, replace, restore, or maintain major
components.
(iii) If applicable, the amount of funds received
from either a compensatory damage award or settlement to an
association from any person or entity for injuries to property, real
or personal, arising out of any construction or design defects, and
the expenditure or disposition of funds, including the amounts
expended for the direct and indirect costs of repair of construction
or design defects. These amounts shall be reported at the end of the
fiscal year for which the study is prepared as separate line items
under cash reserves pursuant to clause (ii). Instead of complying
with the requirements set forth in this clause, an association that
is obligated to issue a review of their financial statement pursuant
to subdivision (b) may include in the review a statement containing
all of the information required by this clause.
(C) The percentage that the amount determined for
purposes of clause (ii) of subparagraph (B) equals the amount determined
for purposes of clause (i) of subparagraph (B).
(D) The current deficiency in reserve funding expressed
on a per unit basis. The figure shall be calculated by subtracting the
amount determined for purposes of clause (ii) of subparagraph (B) from
the amount determined for purposes of clause (i) of subparagraph (B) and
then dividing the result by the number of separate interests within the
association, except that if assessments vary by the size or type of
ownership interest, then the association shall calculate the current
deficiency in a manner that reflects the variation.
(3) A statement as to all of the following:
(A) Whether the board of directors of the association
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.
(B) Whether the board of directors of the association,
consistent with the reserve funding plan adopted pursuant to subdivision
(e) of Section 1365.5, 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.
(C) The mechanism or mechanisms by which the board of
directors 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.
(D) 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.
(4) A general statement addressing the procedures used for
the calculation and establishment of those reserves to defray the future
repair, replacement, or additions to those major components that the
association is obligated to maintain. The report shall include, but need not
be limited to, reserve calculations made using the formula described in
paragraph (4) of subdivision (b) of
Section 1365.2.5, and may not assume a rate of return on cash reserves
in excess of 2 percent above the discount rate published by the Federal
Reserve Bank of San Francisco at the time the calculation was made. The
summary of the association's reserves disclosed pursuant to paragraph (2)
shall not be admissible in evidence to show improper financial management of
an association, provided that other relevant and competent evidence of the
financial condition of the association is not made inadmissible by this
provision. Notwithstanding a contrary provision in the governing documents,
a copy of the operating budget shall be annually distributed not less than
30 days nor more than 90 days prior to the beginning of the association's
fiscal year.
(b) Commencing January 1, 2009, a summary of the reserve funding
plan adopted by the board of directors of the association, as specified in
paragraph (4) of subdivision (e) of Section
1365.5. The summary shall include notice to members that the full reserve
study plan is available upon request, and the association shall provide the full
reserve plan to any member upon request.
(c) A review of the financial statement of the association shall
be prepared in accordance with generally accepted accounting principles by a
licensee of the California Board of Accountancy for any fiscal year in which the
gross income to the association exceeds seventy-five thousand dollars ($75,000).
A copy of the review of the financial statement shall be distributed within 120
days after the close of each fiscal year.
(d) Instead of the distribution of the pro forma operating
budget required by subdivision (a), the board of directors may elect to
distribute a summary of the pro forma operating budget to all of its members
with a written notice that the pro forma operating budget is available at the
business office of the association or at another suitable location within the
boundaries of the development, and that copies will be provided upon request and
at the expense of the association. If any member requests that a copy of the pro
forma operating budget required by subdivision (a) be mailed to the member, the
association shall provide the copy to the member by first-class United States
mail at the expense of the association and delivered within five days. The
written notice that is distributed to each of the association members shall be
in at least 10-point boldface type on the front page of the summary of the
budget.
(e) A statement describing the association's policies and
practices in enforcing lien rights or other legal remedies for default in
payment of its assessments against its members shall be annually delivered to
the members not less than 30 days nor more than 90 days immediately preceding
the beginning of the association's fiscal year.
(f)
(1) A summary of the association's property, general
liability, earthquake, flood, and fidelity insurance policies, which shall
be distributed not less than 30 days nor more than 90 days preceding the
beginning of the association's fiscal year, that includes all of the
following information about each policy:
(A) The name of the insurer.
(B) The type of insurance.
(C) The policy limits of the insurance.
(D) The amount of deductibles, if any.
(2) The association shall, as soon as reasonably
practicable, notify its members by first-class mail if any of the policies
described in paragraph (1) have lapsed, been canceled, and are not
immediately renewed, restored, or replaced, or if there is a significant
change, such as a reduction in coverage or limits or an increase in the
deductible, as to any of those policies. If the association receives any
notice of nonrenewal of a policy described in paragraph (1), the association
shall immediately notify its members if replacement coverage will not be in
effect by the date the existing coverage will lapse.
(3) To the extent that any of the information required to be
disclosed pursuant to paragraph (1) is specified in the insurance policy
declaration page, the association may meet its obligation to disclose that
information by making copies of that page and distributing it to all of its
members.
(4) The summary distributed pursuant to paragraph (1) shall
contain, in at least 10-point boldface type, the following statement:
"This summary of the association's policies of insurance
provides only certain information, as required by subdivision (f) of
Section 1365 of the Civil Code, and should not be considered a
substitute for the complete policy terms and conditions contained in the
actual policies of insurance. Any association member may, upon request
and provision of reasonable notice, review the association's insurance
policies and, upon request and payment of reasonable duplication
charges, obtain copies of those policies. Although the association
maintains the policies of insurance specified in this summary, the
association's policies of insurance may not cover your property,
including personal property or, real property improvements to or around
your dwelling, or personal injuries or other losses that occur within or
around your dwelling. Even if a loss is covered, you may nevertheless be
responsible for paying all or a portion of any deductible that applies.
Association members should consult with their individual insurance
broker or agent for appropriate additional coverage."
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