By: Cooper R. McHatton, Esq.
Assembly Bill 2050 (AB 2050) is currently progressing through the California Legislature. If passed in its current form, the bill would take effect January 1, 2032, and introduce stricter reserve funding mandates under the California Civil Code. Specifically, it would require every reserve study to identify the minimum annual contribution needed to ensure the association’s reserve balance never falls below zero over the next 30 years. Associations would then be required to fund reserves at least at that minimum level each year. If the required contribution would exceed statutory limits on regular assessment increases, the association could (and in many cases would need to) levy a one-time reserve special assessment to bring funding back on track without the need for another reserve special assessment within the following nine fiscal years. While the bill is not yet law and could still change, it signals a potential shift toward long-term reserve funding accountability.
The Importance of Sound Reserve Funding
Reserve funding and planning remains critical under current law regardless of whether AB 2050 ultimately passes. The Civil Code already requires every California HOAs to conduct a comprehensive reserve study (including visual inspection of major components) at least once every three (3) years, adopt and annually review a reserve funding plan, and disclose the plan and current funding level to members in the annual budget report. These obligations are not optional; they form part of an HOA board’s fiduciary duty to maintain the common areas and protect the community’s financial health. Underfunding reserves today often leads to large, unexpected special assessments later, deferred maintenance, declining property values, Fannie Mae/Freddie Mac ineligibility, and potential liability for boards that fail to plan prudently.
Every association should treat reserve planning as a high priority now. A well-funded reserve account provides stability, minimizes the need for disruptive special assessments, and positions associations to be able to weather both routine repairs and any future legislative changes. If an association’s most recent reserve study is more than two years old or funding level has slipped, now is an excellent time to revisit it with legal counsel. Don’t wait, be proactive!
Cooper R. McHatton, Esq. is an associate attorney at Beaumont Tashjian, where he focuses on litigation and provides general counsel services to community associations throughout California.
