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CALIFORNIA CIVIL CODE
SECTION 1365
Preparation and distribution of financial and insurance documents
Text
Unless the governing documents impose more stringent standards,
the association shall prepare and distribute to all of its
members the following documents:
(a) A pro forma operating budget, which shall include all
of the following:
(1) The estimated revenue and expenses on an accrual basis.
(2) A summary of the association's reserves based upon the
most recent review or study conducted pursuant to Section
1365.5, which shall be printed in boldface type and include
all of the following:
(A) The current estimated replacement cost, estimated remaining
life, and estimated useful life of each major component.
(B) As of the end of the fiscal year for which the study is
prepared:
(i) The current estimate of the amount of cash reserves necessary
to repair, replace, restore, or maintain the major components.
(ii) The current amount of accumulated cash reserves actually
set aside to repair, replace, restore, or maintain major components.
(iii) If applicable, the amount of funds received from either
a compensatory damage award or settlement to an association
from any person or entity for injuries to property, real or
personal, arising out of any construction or design defects,
and the expenditure or disposition of funds, including the
amounts expended for the direct and indirect costs of repair
of construction or design defects. These amounts shall be
reported at the end of the fiscal year for which the study
is prepared as separate line items under cash reserves pursuant
to clause (ii). In lieu of complying with the requirements
set forth in this clause, an association that is obligated
to issue a review of their financial statement pursuant to
subdivision (b) may include in the review a statement containing
all of the information required by this clause.
(C) The percentage that the amount determined for purposes
of clause (ii) subparagraph (B) equals the amount determined
for purposes of clause (i) of subparagraph (B).
(3) A statement as to whether the board of directors of the
association 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
reserves therefor.
(4) A general statement addressing the procedures used for
the calculation and establishment of those reserves to defray
the future repair, replacement, or additions to those major
components that the association is obligated to maintain.
The summary of the association's reserves disclosed pursuant
to paragraph (2) shall not be admissible in evidence to show
improper financial management of an association, provided
that other relevant and competent evidence of the financial
condition of the association is not made inadmissible by this
provision.
A copy of the operating budget shall be annually distributed
not less than 45 days nor more than 60 days prior to the beginning
of the association's fiscal year.
(b) A review of the financial statement of the association
shall be prepared in accordance with generally accepted accounting
principles by a licensee of the California Board of Accountancy
for any fiscal year in which the gross income to the association
exceeds seventy-five thousand dollars ($75,000). A copy of
the review of the financial statement shall be distributed
within 120 days after the close of each fiscal year.
(c) In lieu of the distribution of the pro forma operating
budget required by subdivision (a), the board of directors
may elect to distribute a summary of the pro forma operating
budget to all of its members with a written notice that the
pro forma operating budget is available at the business office
of the association or at another suitable location within
the boundaries of the development, and that copies will be
provided upon request and at the expense of the association.
If any member requests that a copy of the pro forma operating
budget required by subdivision (a) be mailed to the member,
the association shall provide the copy to the member by first-class
United States mail at the expense of the association and delivered
within five days. The written notice that is distributed to
each of the association members shall be in at least 10-point
boldface type on the front page of the summary of the budget.
(d) A statement describing the association's policies and
practices in enforcing lien rights or other legal remedies
for default in payment of its assessments against its members
shall be annually delivered to the members during the 60-day
period immediately preceding the beginning of the association's
fiscal year.
IINSURANCE
(e)(1) A summary of the association's property, general liability,
and earthquake and flood and fidelity insurance policies,
which shall be distributed within 60 days preceding the beginning
of the association's fiscal year, that includes all of the
following information about each policy:
(A) The name of the insurer.
(B) The type of insurance.
(C) The policy limits of the insurance.
(D) The amount of deductibles, if any.
(2) The association shall, as soon as reasonably practicable,
notify its members by first-class mail if any of the policies
described in paragraph (1) have lapsed, been canceled, and
are not immediately renewed, restored, or replaced, or if
there is a significant change, such as a reduction in coverage
or limits or an increase in the deductible, as to any of those
policies. If the association receives any notice of nonrenewal
of a policy described in paragraph (1), the association shall
immediately notify its members if replacement coverage will
not be in effect by the date the existing coverage will lapse.
(3) To the extent that any of the information required to
be disclosed pursuant to paragraph (1) is specified in the
insurance policy declaration page, the association may meet
its obligation to disclose that information by making copies
of that page and distributing it to all of its members.
(4) The summary distributed pursuant to paragraph (1) shall
contain, in at least 10-point boldface type, the following
statement: "This summary of the association's policies
of insurance provides only certain information, as required
by subdivision (e) of Section 1365 of the Civil Code, and
should not be considered a substitute for the complete policy
terms and conditions contained in the actual policies of insurance.
Any association member may, upon request and provision of
reasonable notice, review the association's insurance policies
and, upon request and payment of reasonable duplication charges,
obtain copies of those policies. Although the association
maintains the policies of insurance specified in this summary,
the association's policies of insurance may not cover your
property, including personal property or, real property improvements
to or around your dwelling, or personal injuries or other
losses that occur within or around your dwelling. Even if
a loss is covered, you may nevertheless be responsible for
paying all or a portion of any deductible that applies. Association
members should consult with their individual insurance broker
or agent for appropriate additional coverage."
Added Stats 1985 ch 874 § 14. Amended Stats 1988 ch
1388 § 1, ch 1409 § 2; Stats 1990 ch 716 §
1 (AB 2438); Stats 1991 ch 412 § 1 (AB 623); Stats 1995
ch 199 § 1 (SB 300); Stats 1996 ch 396 § 1 (SB 1525);
Stats 1997 ch 17 § 14 (SB 947); Stats 1999 ch 898 §
1 (AB 1048); Stats 2000 ch 1055 § 8 (AB 2889), effective
September 30, 2000; Stats 2002 ch 1116 § 7 (AB 555).
ANNOTATIONS
ANNOTATIONS
Former Sections:
Former § 1365 was enacted 1872 and repealed Stats 1931
ch 281 (Prob C § 1700).
Amendments:
1988 Amendment:
(1) Substituted "An estimate of the current replacement
costs of the estimated remaining useful" for "The
identification of the estimated remaining" at the beginning
of subd (a)(3); (2) amended subd (b) by (a) deleting "copy
of a" after "A"; and (b) adding "A copy
of" at the beginning of the second sentence; (3) added
subd (c); and (4) redesignated former subd (c) to be subd
(d). (As amended Stats 1988, ch 1409, compared to the section
as it read prior to 1988. This section was also amended by
an earlier chapter, ch 1388. See Gov C § 9605.)
1990 Amendment:
(1) Substituted the introductory clause for the former introductory
clause which read: "Unless the declaration imposes more
stringent standards, financial statements shall be prepared
by the association and distributed to all its members as follows:";
(2) substituted the introductory clause of subd (a) for the
former first paragraph and introductory clause of subd (a)
which read: "(a) A pro forma operating budget shall be
distributed not less than 45 days nor more than 60 days prior
to the beginning of the association's fiscal year. The budget
shall include all of the following:"; (3) added ",
and " after "replacement costs of" in subd
(a)(3); (4) added the last paragraph in subd (a); and (5)
amended subd (c) by (a) substituting "pro forma operating
budget" for "financial statement" and for "statement"
wherever it appears; (b) adding "that" after "member
requests" in the second sentence; (c) deleting "to"
after "subdivision (a)" in the second sentence;
and (d) substituting "budget" for "statement"
at the end.
1991 Amendment:
(1) Substituted subds (a)(2) and (a)(3) for former subds (a)(2)
and (a)(3) which read: "(2) The identification of the
total cash reserves currently set aside.
"(3) An estimate of the current replacement costs of,
and the estimated remaining useful life of, and the methods
of funding used to defray the future repair, replacement,
or additions to, those major components which the association
is obligated to maintain."; (2) substituted "replacement,"
for "replacements" in subd (a)(4); and (3) added
the second paragraph of subd (a).
1995 Amendment:
(1) Substituted "governing documents impose" for
"declaration imposes" in the introductory clause;
and (2) added subds (e)-(i).
1996 Amendment:
(1) Substituted subd (e) for former subd (e) which read: "(e)
A summary of the association's general liability policy that
states all of the following:
"(1) The name of the insurer.
"(2) The policy limits of the insurance.
"(3) If an insurance agent, as defined in Section 1621
of the Insurance Code, an insurance broker, as defined in
Section 1623 of the Insurance Code, or an agent of an insurance
agent or insurance broker has assisted the association in
the development of the general liability policy limits and
if the recommendations of the insurance agent or insurance
broker were followed.
"(4) The insurance deductibles.
"(5) The person or entity that is responsible for paying
the insurance deductible in the event of loss.
"(6) Whether or not the insurance coverage extends to
the real property improvements to the separate interests.";
and (2) deleted former subds (f)-(i) which read: "(f)
A summary of the association's earthquake and flood insurance
policy, if one has been issued, that states all of the following:
"(1) The name of the insurer.
"(2) The policy limits of the insurance.
"(3) The insurance deductibles.
"(4) The person or entity that is responsible for paying
the insurance deductible in the event of loss.
"(g) A summary of the liability coverage policy for the
director and officers of the association that lists all of
the following:
"(1) The name of the insurer.
"(2) The limits of the insurance.
"(h) Notwithstanding subdivisions (e), (f), and (g),
the association shall, as soon as reasonably practical, notify
its members by first-class mail if any of the policies have
been canceled and not immediately replaced. If the association
renews any of the policies or a new policy is issued to replace
an insurance policy of the association, and where there is
no lapse in coverage, the association shall notify its members
of that fact in the next available mailing to all members
pursuant to Section 5016 of the Corporations Code.
"(i) To the extent that the information to be disclosed
pursuant to subdivisions (e), (f), and (g) is specified in
the insurance policy declaration page, the association may
meet the requirements of those subdivisions by making copies
of that page and distributing it to all its members."
1997 Amendment:
Substituted (1) "equals" for "is" before
"of the amount"; and (2) "as to" for "for"
after "in the deductible," in subd (e)(2).
1999 Amendment:
Amended subd (a)(2) by (1) adding subd (a)(2)(B)(iii); and
(2) deleting "of" after "clause (ii)"
in subd (a)(2)(C).
2000 Amendment:
(1)Deleted "of" after "equals" in subd
(a)(2)(C); and (2)substituted "California Board of Accountancy"
for "California State Board of Accountancy" in subd
(b).
2002 Amendment:
(1)Substituted "bold" for "boldface" in
subd (a) (2); (2) added "and fidelity" in subd (e)
(1); (3)substituting "Proceeding's" for "Proceeding"
in subds (b), (e) (2), and (h) (2); (4) amended subd (e) by
(a) in (B) deleting "such" before "policy of";
(b)adding "provided" at the end of the last sentence;
(c)substituting "facilitator" for "facility"
before "for designation as peripheral"; (5) deleted
the comma in the last sentence of subd (f) (1) after "respondent".
Historical Derivations:
Former § 1730, as added Stats 1983 ch 1288 § 2.
Collateral References:
Cal Forms Pl & Practice (Matthew Bender) ch 124 "Condominiums
and Other Common Interest Developments"
Witkin Summary (9th) ed) Equity § 46
Taking a closer look: significant new California legislation
enacted in 1988. 12 CEB Real Prop L Rep No. 2 p 55
Miller & Starr, Cal Real Estate 3d §§ 25:104,
25:111, 25:145
Law Review Articles:
1988 legislative summary. 7 Cal Real Prop J No. 1 p 1
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