Starting January 1, 2019, boards of directors are required to provide written authorization for large transfers of funds.
Transfers of greater than ten thousand dollars ($10,000) or 5 percent of an association’s total combined reserve and operating account deposits, whichever is lower, shall not be authorized from the account without prior written approval from the board of the association. (Civ. Code §5380(b)(6).)
Notwithstanding any other law, transfers of greater than ten thousand dollars ($10,000) or 5 percent of an association’s total combine reserve and operating account deposits, whichever is lower, shall not be authorized from the association’s reserve or operating accounts without prior written board approval. This section shall apply in addition to any other applicable requirements of this part. (Civ. Code §5502.)
Transfer Defined. As initially written, the Assembly bill expressly referenced “electronic transfers.” The word “electronic” was removed as the bill made its way through the Senate. The Digest from the Senate Floor Analysis still referred to the purpose of the bill as to prohibiting “electronic transfers from homeowner association accounts without prior board approval.” Other types of transfers likely include wire transfers, telephone transfers, etc., which may explain the omission of the word “electronic.” However, "transfer" is broadly defined as the movement of funds from one place to another. While it may not be strictly required, the more conservative approach is to require board approval of any transfer of funds, including by checks.
Recurring Expenses. If there are routine budgeted transfers on a recurring basis requiring approval (e.g., property taxes, water bills, power bills, contributions to reserves), a board could approve those transfers in advance. For example, the board could approve all budgeted utility transfers at the beginning of each year, for the entire year.
Reserve Transfers. The same solution can be used for monthly transfers into reserves that exceed $10,000. Boards can approve a resolution or motion in the minutes giving written approval to the management company to make such transfers into the reserves.
Delegable Duty? Can the approval requirement be delegated to management? The language in Civil Code §5380(b)(6) and §5502 expressly state prior written "board" approval. Civil Code §4085 defines "board" as the board of directors of the association. Accordingly, approval authority cannot be delegated to management. It could, however, be delegated to an "Executive Committee" composed entirely of directors. Any act or decision by a majority of the directors on the Committee is deemed an act of the board. (Corp. Code 7212.)
Recommendation: Because these matters are unsettled, boards should rely on their association's legal counsel on how best to proceed.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.