Required Reserve Disclosures
Required Disclosures. Boards are required to make the following reserve disclosures:
- Deficiencies. Disclose any deficiencies in the reserves expressed on a per-unit basis. (Civ. Code § 5565(d))
- Deferrals. Disclose whether the board plans to defer repairs or replacement of any major component, including a justification for the deferral. (Civ. Code § 5300(b)(4))
- Loans. Disclose 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. (Civ. Code § 5300(b)(8))
- Reserve Funding Plan. Distribute the reserve funding plan along with the association’s annual operating budget.
- Form of Disclosures. Prepare and distribute specific reserve funding disclosures that comply with Civil Code § 5570. NOTE: There seems to be some concern over paragraph (3) in the Funding Disclosure Summary, which requires a definitive "yes" or "no" answer regarding future events over which the association has no control. While it is helpful for members to find a clear yes-or-no answer, boards anxious about potential liability may add qualifying language stating that the answer is only a projection. The association’s attorney and/or reserve preparer can provide appropriate modifying language. Paragraph (7) also raises questions. It calls for a number of estimates for each of the five years. If those estimates appear in the more complete 30-year Funding Plan, that document can be attached, more than satisfying the Paragraph (7) 5-year requirement.
Disclosure Window. The disclosure must be made not less than 30 days nor more than 90 days before the beginning of the association’s fiscal year. This is an improvement over the previous requirement, which had a 15-day window for disclosure. For other disclosures, see the disclosure checklist.
Failure to Make Disclosures
If a board fails or refuses to make the above disclosures, an owner can sue the board in Small Claims Court to force disclosure of the records. “If a court finds that the association unreasonably withheld access to the association records, the court shall award the member reasonable costs and expenses, including reasonable attorney’s fees, and may assess a civil penalty of up to five hundred dollars ($500) for the denial of each separate written request.” (Civ. Code § 5235)
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