How Do the HOA Budget and Reserve Study Work Under California Law?

Under California's Davis-Stirling Act, a condo association sends owners an annual budget report 30 to 90 days before the end of its fiscal year. It also keeps a reserve study, which estimates what the building's big components will cost to repair or replace and how much the association should be saving. The board has the study's inspection done at least once every three years and reviews the study every year.

Together, these two documents show whether the monthly fee is set at a level the building can sustain. At Rooster Homes™, they are the first two documents we open with a buyer. This article explains what the law requires in each one, based on the Civil Code, and what to look for when you read them. It is general information, not legal or financial advice.

Civil Code section 5300 lists what the report includes, unless the building's governing documents require more. The parts a buyer reads most closely:

• An operating budget showing estimated revenue and expenses.
• A summary of the reserves and a summary of the reserve funding plan. The report tells members the full reserve plan is available on request.
• A statement on deferred repairs. The board says whether it has decided to defer or skip repair or replacement of any major component with a remaining life of 30 years or less, and why.
• A statement on special assessments. The board says whether it expects one or more special assessments will be needed for major components. If so, it gives the estimated amount, the start date and how long it will last.
• Outstanding loans with an original term of more than one year, including the amount owed and when the loan is scheduled to be paid off.
• An insurance summary. It covers the property and general liability policies plus earthquake, flood and fidelity coverage. Each entry shows the limit and the deductible.
• FHA and VA status. For a condominium project, the report states whether the building is approved by the Federal Housing Administration and by the Department of Veterans Affairs.

The report also comes with a one-page form called the Assessment and Reserve Funding Disclosure Summary, set out in section 5570. It is the fastest place to start.

A reserve study is the association's long-range repair plan. Under section 5550, the board has a visual inspection of the accessible areas of the major components done at least once every three years. The board then reviews the study every year and makes needed adjustments. This requirement applies when the replacement value of the major components is at least half of the association's gross budget, not counting the reserve account.

At a minimum, the study includes:

1. The major components the association maintains that have a remaining useful life of less than 30 years.
2. How long each one is expected to last.
3. What it will cost to repair or replace each one.
4. The total yearly contribution needed to cover those costs, after the reserves already saved.
5. A reserve funding plan showing how the association plans to pay for it.

Section 5550 also says major components include gas, water and electrical service lines, to the extent the association is responsible for them. In an older Los Feliz building, those lines can be some of the largest items in the plan.

Percent funded compares the money actually saved with the amount the study says should be saved by now. Section 5565 requires the reserve summary to show both numbers, the percentage between them, and the current shortfall expressed per unit.

Say a study estimates a building should have a certain amount set aside by year end, and the association has half of that in cash. It is 50 percent funded. The per-unit shortfall tells you roughly what each owner's share of the gap looks like.

The disclosure summary form in section 5570 also asks the board a direct yes or no question. Based on the latest study, will the projected reserve balances be enough to meet the association's repair obligations each year for the next 30 years? If the answer is no, the form asks what additional assessments or contributions would be needed. We read that answer with every buyer.

The Assessment and Reserve Funding Disclosure Summary is a standard form, set out word for word in section 5570. It goes out with every annual budget report. Because every association uses the same form, it is the easiest way to compare two Los Feliz buildings side by side.

The form shows:

• The regular assessment per ownership interest.
• Any additional regular or special assessments already approved by the board or the members. For each one it lists the due date, the amount and the purpose.
• The yes or no answer on whether reserves will be enough for the next 30 years.
• If the answer is no, the additional assessments or contributions that would be needed.
• The amount the reserve fund should hold at the end of the current fiscal year, the projected cash balance and the resulting percent funded.
• The same comparison for each of the next five budget years.

The form also notes that its numbers are estimates and can change. We treat it as the starting point, then open the full study for the detail behind it.

Directly. Under section 5560, the reserve funding plan includes a schedule of the date and amount of any change in regular or special assessments needed to fund it. The board adopts the plan at an open meeting of the membership. If the board decides an increase is needed to fund the plan, it approves that increase in a separate action that follows the rules in section 5605.

Those rules are the 20 percent and 5 percent limits on increases and special assessments. We explain them in can my HOA raise dues or levy a special assessment.

This is why a low fee is not the whole story. A building with a modest fee and well-funded reserves is in a different position from a building with the same fee and a large shortfall. The reserves decide whether the fee stays where it is.

When we read a budget report and reserve study with a buyer, these are the questions we answer together:

• What is the percent funded, and which way has it moved since the last report?
• Does the board expect a special assessment? If so, how much, when and for how long?
• Has the board deferred any major repair, and what reason did it give?
• Which big items come due in the next five to ten years? Think roof, plumbing, elevators or balconies.
• Does the association carry loans, and when do they end?
• What do the insurance policies cover, and what are the deductibles? Your insurance agent should see this summary before you choose your own condo policy.
• Is the building FHA or VA approved, if your loan needs it?

Buying your first home? Our guide for first-time condo buyers covers these documents from the beginning. Buying to rent the unit out? The reserves matter to your numbers too, and investing in a Los Feliz condo covers the rest.

Rooster Homes™ is a Los Feliz, Los Angeles real estate brokerage owned by Brandon and Sarah Arlington (DRE #02051216) helping buyers and sellers of Los Feliz condos and townhomes. For any unit you are serious about, we gather the association documents the listing agent already has and go through the budget, the reserves and the rules with you in plain language. Questions for the association get written down and asked. We do that before you remove your contingencies, so you decide with the numbers in front of you. Our buying steps are laid out on how we help you buy in Los Feliz.

When you want a second set of eyes on a building's reserves, send us a note or call (323) 201-2724. For questions about an association's finances beyond the documents, a CPA or an attorney who works with associations is the right call.

This article reflects the California Civil Code as read on the Legislature's website on September 23, 2026. Laws change, so confirm the current text before relying on it.