A couple of bills detrimental to the financial health of community associations were introduced in the California Legislature. These two bills are Senate Bill 1007 (SB 1007) and Senate Bill 1238 (SB 1238).  The former is still winding its way through the Legislature with its financially detrimental provision, while the latter no longer includes its financially detrimental provision.

Currently, boards can raise dues up to an amount that is 20 percent greater than the preceding year’s dues.  A dues increase of more than 20 percent requires the approval of a majority of a quorum of the members.  If enacted into law, SB 1007 would, among other changes, require member approval for any dues increase, adjusted only for inflation.  In other words, member approval would be needed to cover any increase in association expenses incurred for any reason, other than inflation. Associations would not be able to cover, without member approval, increases in costs due to contractually scheduled increases in charges from existing venders, the replacement of existing vendors if the replacement vender’s charges are higher, new services and venders, previously unknown maintenance issues, or any cause other than inflation.

SB 1238 previously included a prohibition against borrowing from reserves to fund litigation or legal services, or to threaten litigation, involving an owner or relative an owner who is a member of the association, unless the litigation involves the repair, restoration, replacement, or maintenance of major components that are reserve items.  Fortunately, that provision has been removed.  If enacted into law, that provision would have terminated the option to borrow from reserves when the litigation is against an association member or member’s relative and concerns violations of the governing documents, assessment delinquencies, architectural standards or decisions, elections, alleged breaches of fiduciary duty (if not covered by insurance), and any other issues that arise outside the context of maintenance/repair of common areas.  Without the option to borrow from reserves, many associations could be financially handicapped in defending against or prosecuting legal action, especially when a dues increase or a special assessment requires member approval.