California HOA reserves bill could raise fees while reducing surprise assessments

By Kenny Choi

A bill awaiting action from Gov. Gavin Newsom could require some California homeowners associations to set aside more money for future repairs, a proposal supporters say would help prevent costly special assessments. But critics warn the legislation could also sharply increase monthly HOA fees.

Assembly Bill 2050 would require homeowners associations with inadequate reserves to eventually allocate at least 15% of their annual budgets toward reserve funding. The requirement would begin in 2032.

For condominium owners, the debate comes as many are already dealing with rising housing costs, including HOA dues. Justin Lo, a condo owner living in Marin County, said unexpected increases can make it difficult for homeowners to plan their finances.

“You account for a monthly and yearly budget,” Lo said. “You don’t want those costs to increase unexpectedly.”

Lo said he is not yet certain whether he supports AB 2050. Supporters argue the reserve requirement would force associations to prepare more adequately for major expenses involving aging buildings, including roofs, plumbing and other common property.

Robert DeNichilo, who represents the Community Associations Institute, said putting more money into reserves over time could reduce the need for homeowners to suddenly come up with thousands of dollars through special assessments.

“It will help over time eliminate or at least reduce the number of special assessments that we’re seeing now,” DeNichilo said. “That surprise bill won’t be a surprise anymore. It will be a smaller increase over time built into the assessment.”

But the Consumer Federation of California is urging Newsom to veto the legislation.

Robert Herrell, the organization’s executive director, said the mandatory reserve contribution could lead to significant increases in assessments for homeowners.

“We think it’s going to lead to a massive increase in homeowner assessments for up to the 14 million Californians who live in HOAs,” Herrell said.

The consumer advocacy group backed separate legislation that sought to limit certain HOA fee increases. Herrell said AB 2050 does not provide enough protection for homeowners who may be unable to absorb higher monthly costs.

“The possibility of these massive assessment increases is really going to push some people out of their homes,” Herrell said.

DeNichilo argues the alternative can also be costly. When associations fail to adequately fund reserves, he said, maintenance expenses do not disappear and homeowners can eventually face large special assessments when major repairs can no longer be postponed.

“The bills of regular maintenance have come due,” DeNichilo said. “As a result of not funding reserves, you’ve had associations post special assessments because those bills don’t go away.”

For Lo, the issue comes down to whether requiring homeowners to pay more now will ultimately save them money later.

“A couple extra hundred dollars here and there is not something everybody can afford necessarily,” Lo said.

Newsom has until the end of September to decide whether to sign or veto AB 2050.