What HOA Boards Need to Know About Assessment Caps

By: AJ Jahanian, Esq.

California Senate Bill 1007 proposes significant changes to how community associations (HOAs) may increase annual assessments. As your legal counsel, we want to ensure your board is informed about this bill’s potential implications – and what you can do.

What Does SB 1007 Propose?

SB 1007 would cap annual HOA assessment increases at the rate of inflation. Any increase beyond that threshold would require a vote of the membership. In other words, the rate of inflation would replace the current 20% threshold for increasing assessments under Civil Code § 5605 The bill also includes disclosure requirements tied to assessment increases and annual reporting obligations.

Key provisions include:

• Assessment increases capped at inflation-adjusted levels without member approval
• Increases beyond the inflation cap require a member vote
• New annual reporting and disclosure requirements tied to assessment increases

Why This Matters 

To the untrained eye, the inflation cap may sound like a reasonable limitation on unmitigated assessment increases during times of financial uncertainty. However, that uncertainty is precisely what makes SB 1007 a shortsighted and potentially damaging piece of legislation. A cap on assessment increase at the rate of inflation fails to reflect the real financial pressures facing community associations. HOAs are required by state law to budget for actual operating costs, and many of those costs consistently outpace inflation. For example:

• Insurance, utilities, and repair costs often rise faster than the general inflation rate, leaving associations unable to cover real expenses.
• HOA budgets have no built-in profit margin. Every dollar spent is a dollar needed.
• Member votes are costly and difficult to pass. Relying on elections to approve necessary increases can delay critical funding and create safety risks.
• Deferred maintenance leads to larger problems. Restricted budgets today often result in large, unpredictable special assessments down the road – the very outcome caps are meant to prevent.
• The current 20% authority is a proven framework. It has served California communities through multiple economic cycles without creating widespread affordability issues.
• At the same time, the State is proposing separate legislation to mandate minimum reserve funding. How can boards ensure they are maintaining healthy reserves if they are unable to raise assessments beyond the rate of inflation?

Where the Bill Stands Now

SB 1007 has passed out of the Senate Housing Committee and has been referred to the Senate Judiciary Committee. It is still in motion, which means there is still time to influence the outcome.

What Boards Should Do: Proactive Planning, Budgeting

Regardless of whether SB 1007 passes, every HOA board has a fiduciary duty to prudently manage finances, budget for actual costs, and maintain the common areas. Directors must act “with the care… that an ordinarily prudent person in a like position would use under similar circumstances.” (Corp. Code § 7231(a).)

Practical Steps to Take (Every Year):

• Budget proactively. Begin at least 60–90 days early. Use current reserve studies, actual expense trends (insurance, utilities, repairs often exceed inflation), and contingencies.
• Prioritize reserves. Follow Civ. Code §§ 5550 and 5560. Contribute adequately to reach or maintain the reserve funding plan. Avoid deferring maintenance – it leads to larger future costs and potential liability.
• Plan for assessment limits. Model budgets at inflation level and at true projected costs. Prepare owner communications and, if needed, a membership vote early. Transparency builds support.
• Maintain strong records. Show the board reviewed financials, reserve studies, and alternatives. This protects the business judgment rule.
• Communicate clearly. Deliver timely, understandable budget reports and disclosures (Civ. Code § 5300). 
• Stay informed. Monitor legislation and consult legal counsel on budgets or proposed increases.

Sound planning fulfills your fiduciary duties, protects property values, and equips your association to handle economic volatility and changing laws – whether SB 1007 becomes law or not.

How Beaumont Tashjian Can Help

Our team closely monitors California HOA legislation and will continue to provide updates as SB 1007 progresses. If you have questions about how this bill may affect your association’s budget or assessment authority, please reach out to our office.

AJ Jahanian, Esq. is a Shareholder with Beaumont Tashjian, where he advises boards and managers on Civil Code, Fair Housing compliance, elections, governing documents, contracts, and dispute resolution.