Question: I am the treasurer for my association, and I am concerned about the deadline for distributing the budget and other official information. Our association's new fiscal year begins Jan. 1. What information is the board required to send to the owners, and when must it be sent?
Answer: Here is an overview of the budget requirements in Civil Code Section 1365:
Unless your association's governing documents have more stringent requirements, the board must approve and distribute the operating budget, including projected operating income and expenses, within 45 to 60 days before the beginning of the fiscal year.
The budget must include very detailed and specific information, printed in bold type, about the most recent reserve study (Civil Code 1365.5).
The method of calculation of the reserve funding and future needs to defray the cost of repair, replacement or additions to the major components of the common areas must be disclosed.
The board must include a statement about any determined or anticipated special assessments that may be needed for reserve components or to build up the reserve funds for anticipated future use.
During the 60-day period before the beginning of the fiscal year, the association must distribute to all owners an explanation of its procedures for enforcing lien rights and other legal remedies when owners fail to pay their assessments.
Current insurance information must also be provided during the 60-day period. Insurance information must include a summary of the association's property coverage along with its general liability, earthquake and flood insurance policies. If the coverage changes during the year, the association must notify the owners as soon as possible. If the association receives notice of non-renewal of a policy, the association must immediately inform the owners if replacement coverage will not be in place prior to the lapsing of the existing coverage.
The law requires that the following exact statement, in 10-point bold type, be included with the association's insurance disclosure:
"This summary of the association's policies of insurance provides only certain information, as required by subdivision (e) 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 these 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."
Insurance requirements for the protection of volunteer directors are listed in Civil Code Section 1365.7. Associations with 100 or fewer units or lots must have both general liability and directors' and officers' liability insurance with minimum coverage of at least $500,000. Associations with more than 100 units or lots must have both types of liability insurance with coverage of at least $1 million.
Two other disclosures are required at some point during the year: the availability of board meeting minutes (Civil Code Section 1363.05) and the use of mediation or arbitration to resolve association disputes (Civil Code Section 1354). This information is often sent out with the budget information.
I also recommend that the association's procedures for enforcement and schedule of monetary penalties be distributed each year, though the law requires distribution only when the board changes the procedures or penalties.
The association must distribute an annual financial report unless it is unincorporated and gross income is less than $75,000 (Civil Code Section 1365). Incorporated associations must distribute annual financial reports if their income is $10,000 or more (Corporations Code Section 8321).
Financial reports must be distributed within 120 days after the end of the fiscal year. If the association's declaration requires earlier distribution or full audit, the association must comply with the declaration.
Civil Code 1365 requires that the annual financial report be a review prepared by an independent licensed accountant according to generally accepted accounting principles.
