Board’s spending raises worries about reserves

Question: I’m a titleholder in a town home association. Our monthly assessments have risen annually since 2004 from about $250 per unit to more than $360. We had special assessments in 2004 and 2005 amounting to about $5,000 per unit per year. The 2004 special assessment was used to replace gutters, pay for completion of deferred maintenance and replace funds in the operating and reserve accounts. The 2005 assessment was used to fund completion of the repair project that was supposed to be funded by the previous year’s special assessment.

These rising costs make me really concerned about how our elected boards are using our reserve money.

How can titleholders restrain a board from spending reserves instead of budgeted operational funds? Can titleholders decide what is an acceptable reserve funding level?

Answer: Titleholders who band together can restrain a board from spending reserves instead of budgeted operational funds, and can make their own decisions on reserve funding. Boards that spend reserves on items other than those for which they were collected demonstrate a basic failure to understand budgeting and spending.

Under California Civil Code Section 1365.5(c)(1), reserve funds shall not be spent “for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established.” But, as with most portions of the Davis-Stirling Act, the law has exceptions.

Civil Code Section 1365.5(d) allows for the temporary transfer of reserve funds to the association’s operating account only after the board has followed certain steps in an exact order. That statute makes it clear that if the board “authorizes the transfer, the board shall issue a written finding, recorded in the board’s minutes, explaining the reasons that the transfer is needed, and describing when and how the moneys will be repaid to the reserve fund. The transferred funds shall be restored to the reserve fund within one year of the date of the initial transfer.”

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