Adams Stirling PLC


Sometimes a board discovers partway into a fiscal year that unexpected significant increases in utility rates or insurance premiums push operating expenses into negative territory and create a significant operating deficit. When this happens, boards have the following options for funding unexpected midyear expenses:

1.  5% Assessment. Boards can approve a special assessment of 5% or less. If the amount is insufficient, the board must explore other options as described below.

2.  Emergency Assessment. Boards can approve a special assessment greater than 5% if it qualifies as an emergency.

3.  Membership-Approved Increase. Boards can present a special assessment or amended budget to the membership for approval. If the membership disapproves, the board must look for alternatives to address the expense.

4.  Reserve Borrowing. Boards can borrow from reserves to cover unexpected expenses and then repay the borrowed amount the following year.

5.  Budget Reductions. Boards can look for items in the budget to reduce or eliminate so as to offset unexpected expenses.

6.  Midyear Budget Increase. The benefit of amending the budget is the board can increase assessments by up to 20%. There is no prohibition in Civil Code § 5300 precluding a board from revising the budgetary information required by subsection (b). Assuming the original budget was timely distributed, the board will have met its one-time statutory obligations under Civil Code § 5605(a) and should be entitled to both revise the budget and increase regular assessments up to 20% as needed after the fiscal year has begun. In addition, Civil Code § 5615 refers to “any increase in the regular assessments.”

If boards do not have the power to increase regular assessments midyear, then Section 5615 has no meaning. The 30 to 60-day timing differs from the 30 to 90-day timing in Section 5300 applicable to beginning-of-year increases. If Section 5615 is intended to apply to beginning-of-year increases only, then any association that distributes the budgets 61 to 90 days before the beginning of the fiscal year (to comply with Section 5300) can’t raise assessments because they just violated Section 5615. Therefore, section 5615 can only apply in the context of midyear increases in regular assessments.

In many associations, the largest unexpected and unbudged expense is a substantial increase in insurance premiums. In an unpublished case, the court of appeal concluded that a one-time charge ($1,000 per unit) to cover operational costs (insurance premiums and other costs) is not a special assessment if it stays within the 20% limitation. Instead, it is a regular assessment. (Taggart v. N. Coast Village.) 

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Adams Stirling PLC