Article 3 - Reserve Planning

California Civil Code — §§ 5550-5580

Sections (6)

Amended by Stats. 2024, Ch. 288, Sec. 2. (SB 900) Effective January 1, 2025.

(a)At least once every three years, the board shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the common interest development, if the current replacement value of the major components is equal to or greater than one-half of the gross budget of the association, excluding the association’s reserve account for that period. The board shall review this study, or cause it to be reviewed, annually and shall consider and implement necessary adjustments to the board’s analysis of the reserve account requirements as a result of that review.

(b)The study required

by this section shall at a minimum include:

(1)Identification of the major components that the association is obligated to repair, replace, restore, or maintain that, as of the date of the study, have a remaining useful life of less than 30 years.

(2)Identification of the probable remaining useful life of the components identified in paragraph (1) as of the date of the study.

(3)An estimate of the cost of repair, replacement, restoration, or maintenance of the components identified in paragraph (1).

(4)An estimate of the total annual contribution necessary to defray the cost to repair, replace, restore, or maintain the components identified in paragraph (1) during and at the end of their useful life, after subtracting total reserve funds as of the

date of the study.

(5)A reserve funding plan that indicates how the association plans to fund the contribution identified in paragraph (4) to meet the association’s obligation for the repair and replacement of all major components with an expected remaining life of 30 years or less, not including those components that the board has determined will not be replaced or repaired.

(c)For purposes of this section, “major components” includes gas, water, and electrical service to the extent that the association is responsible for repair or replacement of those lines pursuant to Section 4775.

§ 5551

Amended by Stats. 2025, Ch. 516, Sec. 5. (SB 410) Effective January 1, 2026.

(a)For purposes of this section, the following definitions apply:

(1)“Associated waterproofing systems” include flashings, membranes, coatings, and sealants that protect the load-bearing components of exterior elevated elements from exposure to water.

(2)“Exterior elevated elements” mean the load-bearing components together with their associated waterproofing system.

(3)“Load-bearing components” means those components that extend beyond the exterior walls of the building to deliver structural loads to the building from decks, balconies, stairways, walkways, and

their railings, that have a walking surface elevated more than six feet above ground level, that are designed for human occupancy or use, and that are supported in whole or in substantial part by wood or wood-based products.

(4)“Statistically significant sample” means a sufficient number of units inspected to provide 95 percent confidence that the results from the sample are reflective of the whole, with a margin of error of no greater than plus or minus 5 percent.

(5)“Visual inspection” means inspection through the least intrusive method necessary to inspect load-bearing components, including visual observation only or visual observation in conjunction with, for example, the use of moisture meters, borescopes, or infrared technology.

(b)(1) At least once every nine years, the board of an association of a condominium project shall cause a reasonably competent and diligent visual inspection to be conducted by a licensed structural or civil engineer or architect of a random and statistically significant sample of exterior elevated elements for which the association has maintenance or repair responsibility.

(2)The inspection shall determine whether the exterior elevated elements are in a generally safe condition and performing in accordance with applicable standards.

(c)Prior to conducting the first visual inspection, the inspector shall generate a random list of the locations of each type of exterior elevated element. The list shall include all exterior elevated elements for which

the association has maintenance or repair responsibility. The list shall be provided to the association for future use.

(d)The inspector shall perform the visual inspections in accordance with the random list generated pursuant to subdivision (c). If during the visual inspection the inspector observes building conditions indicating that unintended water or water vapor has passed into the associated waterproofing system, thereby creating the potential for damage to the load-bearing components, then the inspector may conduct a further inspection. The inspector shall exercise their best professional judgment in determining the necessity, scope, and breadth of any further inspection.

(e)Based upon the inspector’s visual inspections, further inspection, and construction and

materials expertise, the inspector shall issue a written report containing the following:

(1)The identification of the building components comprising the load-bearing components and associated waterproofing system.

(2)The current physical condition of the load-bearing components and associated waterproofing system, including whether the condition presents an immediate threat to the health and safety of the residents.

(3)The expected future performance and remaining useful life of the load-bearing components and associated waterproofing system.

(4)Recommendations for any necessary repair or replacement of the load-bearing components and associated

waterproofing system.

(5)On the first page of the report, all of the following:

(A)The date of inspection.

(B)The total number of units in the condominium project.

(C)The total number of units in the condominium project with exterior elevated elements.

(D)The total number of exterior elevated elements in the condominium project.

(E)The total number of exterior elevated elements inspected pursuant to subdivision (b).

(F)As of the date of inspection in subparagraph (A), the total number of inspected exterior elevated elements identified as posing an immediate threat to the safety of the occupants, pursuant to subdivision (g), and the number of units impacted.

(G)A certification that the inspector has conducted a visual inspection and evaluated a statistically significant sample of the exterior elevated elements within the condominium project, as required by subdivision (b).

(f)The report issued pursuant to subdivision (e) shall be stamped or signed by the inspector, presented to the board, and incorporated into the study required by Section 5550.

(g)(1) If, after inspection of any exterior elevated element, the inspector advises that the exterior elevated element poses an immediate threat to the safety of the occupants, the inspector shall provide a copy of the

inspection report to the association immediately upon completion of the report, and to the local code enforcement agency within 15 days of completion of the report. Upon receiving the report, the association shall take preventive measures immediately, including preventing occupant access to the exterior elevated element until repairs have been inspected and approved by the local enforcement agency.

(2)Local enforcement agencies shall have the ability to recover enforcement costs associated with the requirements of this section from the association.

(h)Each subsequent visual inspection conducted under this section shall commence with the next exterior elevated element identified on the random list and shall proceed in order through the list.

(i)The first inspection shall be completed by January 1, 2025, and then every nine years thereafter in coordination with the reserve study inspection pursuant to Section 5550. All written reports shall be maintained for two inspection cycles as records of the association.

(j)(1) The association shall be responsible for complying with the requirements of this section.

(2)The continued and ongoing maintenance and repair of the load-bearing components and associated waterproofing systems

in a safe, functional, and sanitary condition shall be the responsibility of the association as required by the association’s governing documents.

(k)The inspection of buildings for which a building permit application has been submitted on or after January 1, 2020, shall occur no later than six years following the issuance of a certificate of occupancy. The inspection shall otherwise comply with the provisions of this section.

(l)This section shall only apply to buildings containing three or more attached multifamily dwelling units.

(m)The association board may enact rules or bylaws imposing requirements greater than those imposed by this section.

(n)A

local government or local enforcement agency may enact an ordinance or other rule imposing requirements greater than those imposed by this section.

§ 5560

Added by Stats. 2012, Ch. 180, Sec. 2. (AB 805) Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.

(a)The reserve funding plan required by Section 5550 shall include a schedule of the date and amount of any change in regular or special assessments that would be needed to sufficiently fund the reserve funding plan.

(b)The plan shall be adopted by the board at an open meeting before the membership of the association as described in Article 2 (commencing with Section 4900) of Chapter 6.

(c)If the board determines that an assessment increase is necessary to fund the reserve funding plan, any increase shall be approved in a separate action of the board that is consistent with the procedure described in Section 5605.

§ 5565

Added by Stats. 2012, Ch. 180, Sec. 2. (AB 805) Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.

The summary of the association’s reserves required by paragraph (2) of subdivision (b) of Section 5300 shall be based on the most recent review or study conducted pursuant to Section 5550, shall be based only on assets held in cash or cash equivalents, shall be printed in boldface type, and shall 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:

(1)The current estimate of the amount of cash reserves necessary to repair, replace, restore, or maintain the major components.

(2)The current amount of accumulated cash reserves actually set aside to repair, replace, restore, or maintain major components.

(3)If applicable, the amount of funds received from either a compensatory damage award or settlement to an association from any person 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 paragraph (2). Instead of complying with the requirements set forth in this paragraph, an association that is obligated to issue a review of its financial statement pursuant to Section 5305 may include in the review a statement containing all of the information required by this paragraph.

(c)The percentage that the amount determined for purposes of paragraph (2) of subdivision (b) equals the amount determined for purposes of paragraph (1) of subdivision (b).

(d)The current deficiency in reserve funding expressed on a per unit basis. The figure shall be calculated by subtracting the amount determined for purposes of paragraph (2) of subdivision (b) from the amount determined for purposes of paragraph (1) of subdivision (b) and then dividing the result by

the number of separate interests within the association, except that if assessments vary by the size or type of ownership interest, then the association shall calculate the current deficiency in a manner that reflects the variation.

§ 5570

Amended by Stats. 2016, Ch. 714, Sec. 8. (SB 944) Effective January 1, 2017.

(a)The disclosures required by this article with regard to an association or a property shall be summarized on the following form:

(1)The regular assessment per ownership

interest is $_____ per ____. Note: If assessments vary by the size or type of ownership interest, the assessment applicable to this ownership interest may be found on page _____ of the attached summary.

(2)Additional regular or special assessments that have already been scheduled to be imposed or charged, regardless of the purpose, if they have been approved by the board and/or members:

Note: If assessments vary by the size or type of ownership interest, the assessment applicable to this ownership interest may be found on page ____ of the attached report.

(3)Based upon the most recent reserve study and other information available to the board of directors, will currently projected reserve account balances be sufficient at the end of each year to meet the association’s obligation for repair and/or replacement of major components during the next 30 years?

Yes _____No _____

(4)If the answer to (3) is no, what additional assessments or other contributions to reserves would be necessary to ensure that sufficient reserve funds will be available each year during the next 30 years that have not yet been approved by the board or the members?

(5)All major components are included in the reserve study and are included in its calculations.

(6)Based on the method of calculation in paragraph (4) of subdivision (b) of Section 5570, the estimated amount required in the reserve fund at the end of the current fiscal year is $____, based in whole or in part on the last reserve study or update prepared by ____ as of ____ (month), ____ (year). The projected reserve fund cash balance at the end of the current fiscal year is $____, resulting in reserves being ____ percent funded at this date.

If an

alternate, but generally accepted, method of calculation is also used, the required reserve amount is $____. (See attached explanation)

(7)Based on the method of calculation in paragraph (4) of subdivision (b) of Section 5570 of the Civil Code, the estimated amount required in the reserve fund at the end of each of the next five budget years is $______, and the projected reserve fund cash balance in each of those years, taking into account only assessments already approved and other known revenues, is $______, leaving the reserve at ______ percent funded. If the reserve funding plan approved by the association is implemented, the projected reserve fund cash balance in each of those years will be $______, leaving the reserve at ______ percent funded.

Note: The financial representations set forth in this summary are based on the best estimates of the preparer at

that time. The estimates are subject to change. At the time this summary was prepared, the assumed long-term before-tax interest rate earned on reserve funds was ____ percent per year, and the assumed long-term inflation rate to be applied to major component repair and replacement costs was ____ percent per year.

(b)For the purposes of preparing a summary pursuant to this section:

(1)“Estimated remaining useful life” means the time reasonably calculated to remain before a major component will require replacement.

(2)“Major component” has the meaning used in Section 5550. Components with an estimated remaining useful life of more than 30 years may be included in a study as a capital asset or disregarded from the reserve calculation, so long as the decision is revealed in

the reserve study report and reported in the Assessment and Reserve Funding Disclosure Summary.

(3)The form set out in subdivision (a) shall accompany each annual budget report or summary thereof that is delivered pursuant to Section 5300. The form may be supplemented or modified to clarify the information delivered, so long as the minimum information set out in subdivision (a) is provided.

(4)For the purpose of the report and summary, the amount of reserves needed to be accumulated for a component at a given time shall be computed as the current cost of replacement or repair multiplied by the number of years the component has been in service divided by the useful life of the component. This shall not be construed to require the board to fund reserves in accordance with this calculation.

§ 5580

Added by Stats. 2012, Ch. 180, Sec. 2. (AB 805) Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.

(a)Unless the governing documents impose more stringent standards, any community service organization whose funding from the association or its members exceeds 10 percent of the organization’s annual budget shall prepare and distribute to the association a report that meets the requirements of Section 5012 of the Corporations Code, and that describes in detail administrative costs and identifies the payees of those costs in a manner consistent with the provisions

of Article 5 (commencing with Section 5200) of Chapter 6.

(b)If the community service organization does not comply with the standards, the report shall disclose the noncompliance in detail. If a community service organization is responsible for the maintenance of major components for which an association would otherwise be responsible, the community service organization shall supply to the association the information regarding those components that the association would use to complete disclosures and reserve reports required under this article and Section 5300. An association may rely upon information received from a community service organization, and shall provide access to the information pursuant to the provisions of Article 5 (commencing with Section 5200) of Chapter 6.