Required Contents
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).)
1.
Operating
Budget –
a pro forma operating budget, showing the estimated revenue and expenses on an
accrual basis.
2.
Reserve
Summary
– a summary of the association’s reserve funds, prepared pursuant to Civil Code Section 5565. (See “Reserve Summary.”)
3.
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.
4.
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.
5.
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.
6.
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.
7.
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.
8.
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.
9.
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.”)
10.
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).
11.
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).)
1. The full annual budget
report; or
2. 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. Those
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).)