the CFM Distinction

Monday, August 24, 2015

Inspection of Records in a Homeowners Association

By Tom Fier: Attorney at Law


     The matter of inspection of records comes up in almost every homeowners association.  Some of the most frequent questions are: "What records are subject to inspection?  What are the limits on these inspection rights?  Who pays for the costs involved?  What are the inspection rights of directors?"

     These questions, as well as other questions dealing with  inspection rights within an association, are addressed in this article.  Civil Code sections 5200-5240 deal with this subject.

     What records are subject to inspection?

     a. Financial documents (a summary of the association's
        reserves, the annual budget report, financial statement
        reviews, and audits);

     b. Interim financial statements;

     c. Executed contracts, not privileged;

     d. Written board approval of vendor or contractor proposals
        or invoices;

     e. State and federal tax returns;

     f. Reserve account balances and records of payments made
        from reserve accounts;

     g. Agendas and minutes of meetings of the members, the board
        and committees appointed by the board, excluding minutes
        and other information from executive sessions of the board;
     h. Membership lists, including name, property address, and
        mailing address (but no records/information concerning
        those members who have opted out);

     i. Check registers;

     j. The governing documents;

     k. Reserve studies; and

     l. Enhanced association records which means invoices,
        receipt and cancelled checks for payments made by the
        association, purchase orders approved by the association,
        credit card statements for credit cards of the
        association, statements for services rendered and
        reimbursement requests submitted to the association
        (Civil Code § 5200).

     Can information be withheld or redacted?

     Yes, if it is likely to lead to identity theft; to fraud in connection with the association; documents that are privileged or confidential (subject to attorney-client privilege, litigation, or confidential settlement agreements); a release that is likely to compromise the privacy of a member; information that contains     disciplinary actions, collection activities or payment plans of members, or any personal identification information (i.e. social security number, tax identification number, driver's license number, credit card number, bank account number or bank routing number); minutes and other information from an executive session, personal records, and interior architectural plans, including security features.

     If information is withheld or redacted, the association must provide a written explanation (Civil Code § 5200).

     Who may inspect?

     A member or member's designated representative may inspect [Civil Code § 5205(a)], as well as a director.

     Where may a member inspect/copy the records?

     Inspection or copying of records may be done in the association's business office within the association or at a place agreed to by the requesting member and the association [Civil Code § 5205(c) and (d)].  If a written request is made, the association may deliver copies to the member [Civil Code
§ 5205(e)].

     Can the association charge?

     Yes.  The association may bill the requesting member for the actual cost of copying and mailing.  The association shall inform the member of the amount and this shall be paid prior to copying and sending [Civil Code § 5205(f)].  Additionally, the association may bill a requesting member up to $10.00 per hour not to exceed $200.00 per written request, for the time involved in redacting an enhanced record.  These costs shall be prepaid. [Civil Code § 5205(g)].

     Can the records be produced electronically?

     Yes, the requesting member can request that he/she receive records by electronic transmission or machine-readable storage media so long as the records can be transmitted in redacted format that does not allow the records to be altered.  The association can charge for this cost. [Civil Code § 5205(h)].

     What are the required time frames that the association must keep records?

     a. Records for the current fiscal year, plus two previous

     b. Minutes of members and board meetings need to be kept
        permanently. [Civil Code § 5210(a)].

     Under what time frame must the association produce records?

     a. Association records prepared during the current fiscal
        year: 10 days following receipt of the request [Civil
        Code § 5210(b)(1)].

     b. Association records prepared during the previous 2 years:
        30 days [Civil Code § 5210(b)(2)].
     c. Minutes: within 30 days of the meeting (Civil Code § 4950).

     d. Membership list: 5 days (Civil Code § 8330).

     Can members request e-mail addresses of other members?

     Yes.  The court in Worldmark, The Club v. Wyndham Resort Dev. Corp. (2010) 187 Cal.App.4th 1017 noted that "address" was broad enough to include e-mail addresses.

     Does a member need a reason to request inspection?

     Yes, records and minutes may only be inspected for a purpose reasonably related to the member's interest as a member.  [Civil Code § 5230 a)].  Corporations Code § 8338(a) states that a membership list may not be used to solicit money; for any purpose that the requesting member does not reasonably and in good faith believe will benefit the association; for a commercial purpose or for sale to any person.

     What are a director's rights of inspection? 

     A director has an "absolute" right, at any reasonable time, to inspect and copy all books, records, and documents of the association (Corporation Code § 8334).  This absolute right is constrained by a director's fiduciary duty to act in the best of interests of the association [Corporations Code § 7231(a)], to restrain directors from exercising these rights for personal gain, or to further interests contrary to the interests of the association.

     Can a lender inspect the books and records of the association?

     Most governing documents protect a lender's right to inspect the association's books and records as a way to protect their security interest.



Bank Statements


Checks (cancelled)

E-mail Addresses of Members

Financial Statements


Litigation Documents

Membership List (but not for
a commercial purpose)



Reserve Study


It is important to maintain accurate and up-to-date records.     If an improper motive is suspected, be cautious in releasing documents.  For special situations, consult your attorney.  

Tuesday, August 21, 2012

The CFM Distinction, Summer 2012

The CFM Distinction, Summer 2012 Newsletter

Welcome to the summer edition of our company newsletter. It has been a long time since our last publication, but much has happened during that time. On the personal front, Stacie has added to her family with a beautiful baby boy named Conor. He is already 9 months old and her 3 year old twins round out the very busy household! As for business, we have a very exciting announcement! THE BOARD PORTAL IS READY AT LAST!!! What does this mean for our clients? Our boards will now be able to approve invoices online automating our check writing and disbursal process. Additional features include the ability to view invoices online, both current and historical, as well as Association financial reports. We will be getting everyone setup as soon as possible. Would you like to be one of the first to try it? Please email and she will setup a time to get this process started for you. We hope you are as excited as we are for these technological advances we are now able to offer our clients. Until next time, we wish you a great summer and a Happy 4th of July!

Linnea & Stacie

Are You in Compliance?

As most of you are aware, a new law went into effect Jan 1 of this year changing the way boards may, or more importantly may not, conduct business. There were several facets to this new law but the biggest change contained in Civil Code 1363.05 states that boards of directors 'shall not conduct a meeting via a series of electronic transmissions, including, but not limited to, electronic mail'. A meeting is defined as any discussion by a majority of the board on any item of business within the authority of the board. There is an exemption to this law for emergency meetings. The Code defines an emergency meeting where 'there are circumstances that could not have been reasonably foreseen which require immediate attention and possible action by the board'. What does all this mean? Very simply, you may not use email as a communication vehicle to discuss business between meetings among board members.
What is the purpose? To increase transparency in the business of the HOA.
What can happen? A challenging member can file a lawsuit and a board may be found in violation of the Open Meeting Act. Fine is $500 per violation + challenging member's attorney's fees and court costs. What should you do? Be very careful when using email and work with counsel to determine what could constitute an emergency to justify the use.

Stump the Experts

If you have a question regarding the financial management of your association, please send an e-mail to: If your question is chosen, we will publish the information in our next newsletter.
See what our clients are saying about us...

'...amazing and helpful individuals...'

I wanted to let you know that you have some amazing and helpful individuals... I am in Singapore... I appreciate the patience and understanding that was paid to me until I was able to get things reorganized... office was helpful and follow up was tremendous.

Denise Shirkey
HOA Property Owner

To read more client testimonials, click here
The Franklin Award is a company reward of a $100 bill given to one employee per quarter in recognition of an outstanding achievement or extraordinary task completion. They can be nominated by their fellow employees, by a homeowner, board member, or colleague. The Franklin Award winner for 1st quarter 2012 is Theresa Hall, accounts payable specialist, in recognition of her outstanding service to the company. Theresa was nominated both internally and externally by clients who recognized her great work and took the time to share with us!

Thursday, July 26, 2012

Budgeting/Net Income-Facts and Procedures

By: Linnea Juarez PCAM, CCAM

Each year the Board of Directors must take on the task of preparing and adopting an operating budget for the Association. This process involves an analysis of the reserve funding needs and requirements, operating income and expense over the current fiscal year and the association’s needs and owner’s expectations.

The result is the determination of the adequacy of the current assessment level as compared to the reserve funding requirements and operating expense projections. If the total of these two fund requirements is greater than the expected revenue sources, the board must contemplate options to cover this shortfall.

One obvious option is to raise the revenue levels usually through assessment increases. This is often necessary and desirable based on ongoing increases to operating costs. Another consideration must be the results of operations over the current operating year and prior year’s net operating results.

If the association has a positive operating fund balance, current net income which will result in a net increase to the operating fund balance and excess operating cash, then the board can and should consider using that net income to cover the increased operating and reserve requirements for the upcoming fiscal year.

An important consideration is that the net income to be applied to the budget must be backed by available operating cash. If the net income is mainly backed by accounts receivable and other non-cash assets, the net income is not a viable answer to the need for operating cash to cover increased operating expenses and reserve funding.

If the board determines that net income does exist and is backed by an accumulation of operating cash then a deficit budget should be adopted and published. This means that the revenue shown on the budget will be less than the total reserve allocations and operating expenses. The bottom line will be a net operating loss in the budget which will be covered by the carryover of net operating income from prior years.

Obviously the budget must be accompanied by a letter explaining why a deficit budget is being published and how it will be funded with excess operating cash.

After this process occurs the board’s next task is the end of their fiscal or calendar year and the preparation of the association tax returns and year-end financial statements. This involves the engagement of a CPA to perform these services for the association and to advise the board on their options regarding the filing of tax returns either under Revenue Code 277 or 528.

A short tutorial on these tax options is necessary for the board to understand the ramifications of each decision and the underlying costs and potential liabilities related to these two methods of tax filing. I am dismayed that the tax filing options are usually not even discussed with the board. They are handed a tax return and asked to sign. That appears to be the extent of their involvement in the process.

The association can file either an 1120 tax return or an 1120H. If the board chooses to file an 1120 under IRS Revenue Code 277, they must do all of the following;

1) Pay Estimated taxes in a timely fashion
2) Pay tax liability on time
3) Have the owners vote annually on the 70-604 election.

The 70-604 election is usually voted on at the annual meeting. Now, with the new election laws, this may become problematic. We have added this to our written ballot to make the process easier. This election basically asks the owners to approve the disposition of any net income which may be the result of the year’s operations. Technically there are three accepted uses for net income under this ruling which will protect the association from tax liability related to this issue.

1) Transfer the net income to Reserves.
2) Carry the net income over to the next operating year to avoid the necessity of increasing the owner’s assessments.
3) Refund the net income to the membership.

Any of these options are dependent on the availability of cash. If the board voted to transfer net income to the reserve fund, but did not have the cash available to actually move from operating to the reserves, would this create an unfunded reserve liability? That certainly would not achieve the results the board was hoping for.

The decision to use net income to cover a projected budget shortfall in the upcoming fiscal or calendar year requires the availability of cash to support the expected costs of operations. You can’t pay bills with accounts receivable.

Refunding net income to homeowners can create an even bigger nightmare. The association may end their fiscal or calendar year with a net income of $1500. If refunded to the membership, what does the association use to pay their January operating bills? These bills may be due and payable before the assessments for the month have been received. The association needs operating cash to continue normal business operations.

Rather than asking the membership to decide the best use of net income, the wording of the 70-604 should be as follows:
Resolved: that any excess of membership income over membership expenses (profit) as defined in Internal Revenue Code Section 277 for the year ended _____ shall be applied to the subsequent tax year member assessment as provided by IRS Revenue Ruling 70-604.

This allows the board to analyze the needs of the association and the best use of any excess funds. They may decide to transfer a portion of the net income to the reserve fund and maintain a portion in the operating account to offset the increases expected in operating costs.

All of these actions are based on the concept of filing an 1120 tax return and having the membership vote on the 70-604 election.

The real question is if this is the best tax option for the association?

Under tax code 277, filing an 1120, the association is taxed at 15%. If they file under tax code 528 using an 1120H, the tax rate is 30%. The real question is what is taxable?

Under tax code 277, filing an 1120, all non-assessment income is taxable. This includes interest earned on banking accounts, both operating and reserve; laundry revenue which is not offset by laundry expense; parking and other revenue not offset by specific expenses. Net income is potentially taxable unless the association has followed the steps required including the passage of the 70-604 election. Various artricles have been written regarding the taxability of net income in this circumstance and a major question is whether an association can have multi-year net operating income protected by the 70-604 election..

There is a school of thought which takes the position that net income must be “used up” in the next year by either application to the reserve fund or to the next year’s assessments to offset required assessment increases. The assumption is that the association could be liable for taxes if the IRS were to perform an audit and determine that net income has occurred over multiple years without proper application as required under the 70-604 election.

All of this uncertainty can be avoided if the association files an 1120H tax form. First the association must qualify to file under revenue code 528 and secondly they must instruct their CPA to use this option. Assuming that your association can qualify (discuss with your CPA) to file an 1120H, the next question is the tax rate imposed under this tax code. The flat rate is 30% tax on all non-assessment income excluding the $100 allowance. If we assume that in most cases non-exempt income relates to interest earned on reserves and operations, how much is taxable?

In today’s banking economy, the earnings are so minor that paying 30% of nothing is nothing. It is a great time to instruct your CPA to file 1120H on behalf of the association. This avoids the issue of voting on the 70-604 election and the question of tax liability on net income. It may also “clean up” prior questionable issues related to net income.

Many CPA’s have already switched their clients to an 1120H filing and some have always filed this way. It is important for the board to have a basic understanding of why. When interest rates rise and taxable income becomes a greater issue, the board should be ready to open a dialogue with their tax preparer.

Wednesday, October 26, 2011

Change in HOA email protocol

P.L.C.(Attorney)3478 Buskirk Ave. #1000Pleasant Hill, Ca.
94523OFFICE: (925) 746-7177FAX:
(925) 215-8454EMAIL:
FAX: (925) 609-9135

People have been talking for years about the upsides and downsides of email. One of the downsides - too many directors have found it to be a great and easy way to conduct business. So let's talk about an important new law, namely a bill that was signed by the Governor about a month ago. It's controversial, for sure. It's about board meetings - and increasing transparency in HOAs.

NOTICE OF OPEN MEETINGS is still 4 days: Senate Bill 563 which has been signed into law tightens up the notice requirements for meetings, and puts an end to email meetings. Owners upset with their boards about secret meetings have nowhere to go, really, to complain, so they go to their legislators. Owners get upset when they want to attend board meetings and cannot find out when or where they are. And it irks owners who want to know what is going on when they see board members out and about walking in the development, or hanging out at the pool or at the local pizza parlor talking about association matters and then coming into meetings with a full consent calendar (meaning decisions have already been made). Whether the problems are real or perceived, the squeaky wheel often gets the grease in Sacramento, especially when it points to bad HOA conduct. Most years it seems to be a very hot topic.

The new law, which takes effect January 1, 2012, will amend Sections 1363, 1363.05, and 1365.2 of the Civil Code (part of the Davis Stirling Act). Notice of the time and place of open board meetings isn't new. For years there has been a legal requirement to notify members at least 4 days prior to the meeting of the date and time of the meetings, except for executive sessions or emergency meetings. This notice could be given by posting in the common area, newsletter, by specification in the Bylaws, or by letter, or any method geared to reach the members.

NOTICE OF EXECUTIVE SESSION MEETINGS: This new law requires notice to be given at least 2 days prior to a meeting "solely" for an executive session (meaning it is not held the same time as a board meeting I suspect). At least it allows for meeting notices by email for any owners that consent. The law changes the rules for considering action items that were not on the meeting notice for a regular board meeting.

The new law permits meetings of the board to be conducted by teleconference - not previously in the Davis Stirling Act, but the Corporations Code has allowed for telephone or video conference meetings for a few years now. Most practitioners had already figured out that if a board met this way in an open meeting, it would have to make arrangements for owners to also "attend" by telephone, or video conference thus protecting the rights of members. The new law also requires that the notice of a teleconference meeting identify at least one physical location so that members of the association may attend and requires that at least one member of the board of directors be present at that location.

THE END OF EMAIL MEETINGS with exception (emergency meetings): The new law also prohibits the board from taking action on any item of business outside of a board meeting, and doing business by email. It was bound to happen! I imagine there were a lot of complaints about this. Good HOA lawyers have been discouraging business by email for years. It's just been too tempting, too easy, for directors to communicate that way, often leaving an incriminating "paper trail" even when they claim to not have done business. This doesn't mean the board cannot communicate via email but watch out to avoid any email that says something like: " Do you agree that we should ???" or "I talked to Bill today and he definitely is a 'yes'. What about you?"

Email is a quick and easy way to share information and circulate downloads and items the board needs to review, but watch for that fine line between passing information and setting up a consent calendar.

There is an exception and that is for matters that require an emergency meeting: "... the board of directors shall not conduct a meeting via a series of electronic transmissions, including, but not limited to, electronic mail, except as specified in subparagraph (B). ... (B) Electronic transmissions may be used as a method of conducting an emergency meeting if all members of the board, individually or collectively, consent in writing to that action, and if the written consent or consents are filed with the minutes of the meeting of the board. Written consent to conduct an emergency meeting may be transmitted electronically."


RECORDS INSPECTION LAW - ACCESS TO EXECUTIVE SESSION AGENDAS. There are also some changes to the records inspection law (Civil Code Section 1365.2); owners will now be entitled to inspect an agenda for an executive session. So how do you protect the privacy of the subject matter? Keep it generic - otherwise the idea of confidentiality is lost. List the "purpose" on the agenda that puts it within the category appropriate for executive session meetings. Those would be discussions about pending or threatened litigation, disciplinary action, contract negotiation, and personnel matters. Suggested sample language: "Discuss disciplinary matter with owner" or "Discuss threat of litigation (or attorney letter regarding litigation)," rather than "Discuss Kim Jones' disciplinary matter with Ms. Jones" or "Discuss litigation threatened by Oleg Stanyon." If the matter to be discussed is pending litigation, the court papers are a matter of public record so you could in that case say "Discuss Dixon v. Association litigation." And the statute does exclude inspection of "... minutes and other information from executive sessions of the board of directors as described in Section 1363.05."

RIGHT TO ATTEND TELECONFERENCE MEETINGS: Added to 1363.05(b) - a member of the association shall be entitled to attend a teleconference meeting or the portion of a teleconference meeting that is open to members, and that meeting or portion of the meeting shall be audible to the members in a location specified in the notice of the meeting.

NEW DEFINITIONS: Here are some of the new definitions:

(1) "Item of business" means any action within the authority of the board, except those actions that the board has validly delegated to any other person or persons, managing agent, officer of the association, or committee of the board comprising less than a majority of the directors.
•(2) "Meeting" means either of the following:

•(A) A congregation of a majority of the members of the board at the same time and place to hear, discuss, or deliberate upon any item of business that is within the authority of the board.

•(B) A teleconference in which a majority of the members of the board, in different locations, are connected by electronic means, through audio or video or both. A teleconference meeting shall be conducted in a manner that protects the rights of members of the association and otherwise complies with the requirements of this title. Except for a meeting that will be held solely in executive session, the notice of the teleconference meeting shall identify at least one physical location so that members of the association may attend and at least one member of the board of directors shall be present at that location. Participation by board members in a teleconference meeting constitutes presence at that meeting as long as all board members participating in the meeting are able to hear one another and members of the association speaking on matters before the board."
As usual, there will be some bristling and complaining about this new law, but the associations that are professionally managed will conform - and there is no telling what the "self-managed" associations will do. It seems that many turn a blind eye to difficult legislation, and there is plenty of it.

Later this month - maybe I will get the opportunity to cover the new small claims court limits, the veto of the turf bill, the results of the transfer fee bill and and other legislation affecting HOAs and Condos. All bills should be final by now. Also watch my blogs for interim information - they are accessible on the main page of this website. Get your friends on the list for the free E-News now! It's never too late.

Beth A. Grimm is an attorney who serves homeowner associations and homeowners alike. She is a frequent contributor to the Echo Journal and other similar publications in the State of California and on a national level. She provides several publications written in plain English to help people who need information about California law as it relates to homeowner associations. She posts a wealth of information on her website. And she was named the Volunteer of the Year in June by the Executive Council of Homeowners.

Check out the Main and Resource Pages at

Check out my new book called "THE CONDO OWNER'S ANSWER BOOK" and my new blog

Thursday, January 13, 2011

Liability in the Bargain? The Dangers of Hiring an Unlicensed Contractor:

By Timothy J. Smith Esq.

Homeowners and homeowners' associations often face expenses to maintain or repair their property. It makes sense to look for the most affordable contractor available to do the work. Many times, through friends or relatives, a homeowner will come across an unlicensed contractor during their search for a person to do the work. The unlicensed contractor will provide a bid that is much lower than bids from licensed contractors and promises to do the same work. It sounds so appealing to save money but still get great workmanship that many people fall into the trap and hire the unlicensed contractor. However, the cheapest contractor available might be the one that will cost the most in the long run.

Monday, November 8, 2010


Not less than thirty (30) days nor more than ninety (90) days prior to the beginning of the fiscal year:

Pro Forma Operating Budget Civil Code §1365(a)

The association must distribute its “pro forma” operating budget within the “60-day window” to retain its ability to increase assessments without seeking an approval of the membership. If this requirement is not met, the members must approve any increase to the regular assessments.

Wednesday, October 20, 2010

Newsflash: Tough Secondhand Smoke Laws for Contra Costa County Condominiums

By Andrea L. O'Toole, Esq

The Contra Costa County Board of Supervisors has just passed an ordinance that bans smoking in all areas of new multi-unit residences. This follows a recent trend in the Bay Area as several cities and counties are more aggressively regulating secondhand smoke in multi-unit residential buildings. See article regarding San Francisco’s recently-enacted secondhand smoke regulations Contra Costa ordinance further limits where persons may smoke within existing multi-unit residences.

A multi-unit residence is a building having four or more dwelling units and, as such, would include most residential condominium buildings and many mixed-use residential/commercial buildings. Three cities in Contra Costa County - Richmond in 2009, and more recently, Pinole and Pleasant Hill - have already passed similar regulation of secondhand smoke.