Across California’s communities governed by homeowner’s associations, practices that promote transparency are not only essential to building trust between an association and its members but, in many cases, legally required. Under the Davis-Stirling Common Interest Development Act, associations must adhere to specific requirements for annual disclosures, record maintenance, and financial oversight. Governing boards should familiarize themselves with these requirements to comply with the law and maintain trust with their members.
This article explores the core requirements for annual disclosures under Civil Code sections 5300–5320, practical insights for association record requests, and considerations for board access to association financial information.
Annual Disclosures
Annual disclosures provide members with an overview of the association’s operations and finances. Timely distribution of required annual disclosures is critical not only to ensuring legal compliance but also to providing homeowners with the information they need to understand how their money is being spent and why board decisions are made. Failure to distribute required disclosures within statutory timeframes can result in the loss of a board’s ability to increase assessments or levy special assessments during the upcoming fiscal year without a membership vote and may lead to member complaints or legal challenges.
i. Annual Budget Report
California law requires associations to distribute an annual budget report to all members between 30 and 90 days before the end of the fiscal year. The annual budget report focuses on the association’s financial health, planning, and stability. Per California Civil Code section 5300, the report must include:
- A pro forma operating budget
- A summary of reserves, reserve funding plans, and insurance policies
- A statement addressing:
- Anticipated special assessments
- Whether the board has deferred major repairs or replacements
- Mechanisms for funding reserves
- Procedures for calculating and establishing reserves
- Outstanding loans
- FHA project approval status
- VA project approval status
- A summary of insurance policies
- Charges for escrow disclosure documents
Providing the annual budget report increases transparency and educates members on financial health, assessment calculations, and the board’s decision-making considerations.
Boards should use this report to highlight successes such as well-funded reserves and balanced budgets. Members should review the report to better understand the association’s financial position and its impact on property values.
ii. Annual Policy Statement
Similar to the annual budget report, associations must distribute an annual policy statement between 30 and 90 days before the fiscal year ends. This document outlines the association’s operational framework. Pursuant to Civil Code section 5310, it must include:
- The name and address for official communications
- The location for posting general notices
- Statements explaining:
- Members’ options for dual delivery addresses
- Assessment collection policies
- Lien rights policies
- Discipline policies and fine schedules
- Notice of members’ rights to individual delivery and access to meeting minutes
- A summary of dispute resolution procedures
- Requirements for approval of physical property changes
- The mailing address for overnight assessment payments
This statement clarifies processes and informs members of their rights and responsibilities, which is critical for maintaining transparency and trust within the community.
Association Records
Homeowner associations must maintain and, upon written request, provide members access to certain records. Members or their designated representatives have the right to inspect and copy records from the current fiscal year and the two prior fiscal years, as well as minutes from board meetings open to members.
A member may designate a representative in writing to inspect records on their behalf.
Record delivery timelines:
- Current fiscal year records: within 10 business days
- Previous two fiscal years: within 30 calendar days
Records subject to inspection include, but are not limited to:
- Financial documents, including budgets and ledgers
- Executed contracts and contractor approvals
- Tax returns and reserve balances
- Meeting agendas and minutes (excluding executive session)
- Membership lists (with opt-out protections)
- Check registers
- Governing documents
Associations may redact sensitive information such as personal identifiers and personnel records. Executive session minutes, confidential settlements, and attorney-client privileged materials are exempt from production.
Boards should work with legal counsel to ensure timely compliance and proper redaction. Associations may charge up to $10 per hour (capped at $200 per request) for redaction time and may recover direct copying and mailing costs, provided the member is notified in advance.
Board Access to Real-Time Banking Information
Effective financial management requires regular oversight of association banking details. However, providing board members with real-time banking access is not legally required and is often limited for security and efficiency reasons.
Pursuant to Civil Code section 5500, the board must review the following documents monthly:
- Operating and reserve account reconciliations
- Operating revenues and expenses
- Account statements
- Income and expense statements
- Check registers
- General ledger
- Delinquent receivable reports
This review may be conducted individually or by a subcommittee (typically the treasurer and another director), provided it is ratified at the next board meeting and reflected in the minutes.
Corporations Code section 8334 grants directors the right to inspect records at reasonable times. However, there is no legal requirement to provide online or real-time banking access. Boards must determine who receives direct access, which is typically limited to management or key officers such as the treasurer or president.
Conclusion
Compliance with California’s disclosure and record-keeping requirements is essential for maintaining transparency and accountability within associations. It fosters stronger communities where managers, boards, and homeowners collaborate effectively.
By adhering to Civil Code mandates, associations ensure members remain informed about financial health, policies, and governance practices. Proper record management and financial oversight not only fulfill legal obligations but also build trust and confidence across the community.
Author Bio
Leena Danpour Gurnick, Esq., is an Associate Attorney and represents homeowner associations in transactional matters, providing corporate governance guidance and counsel to Boards of Directors throughout California.
You may reach Leena at Gurnick@roseman.law.
