Scott Brady is co-owner and principal of Progressive Association Management, a CACM-member HOA management company serving 228 communities and nearly 15,000 homeowners throughout Southern California. Since founding the association management division in 2020, Scott has grown the company into the fastest organically growing association management firm in California by limiting manager workloads, providing full back-office support, and holding every team member accountable to documented daily service standards. |
For many years, the California legislature largely ignored common interest developments (CIDs), which include homeowner associations, because there seemed to be no need to intervene. That has changed radically.
Boards are not abiding by state statute requiring them to protect the assets of the corporations they run, which are the common areas. Instead of fully funding their reserves, many have chosen to keep monthly assessments artificially low. Since the governing documents require the board to pay for repairs and replacements in those common areas, they are resorting to special and emergency assessments to cover those costs, which can range from $5,000 per owner to $100,000 or more.
Some of the issues facing boards today are not entirely of their own making. Associations, particularly condominiums and attached townhomes built in the 1970s and 1980s, have reached the end of their physical economic life, and major systems are failing simultaneously. Paying for a new roof is one thing. Paying for a new roof, new plumbing, balcony repairs, and street repaving all at once is another. No one anticipated the balcony repair law, and few associations had a budget line item for inspections or reserves set aside for repairs. Wildfires and insurance issues, combined with large general liability lawsuits, have driven premiums far beyond inflation. Some communities are now paying two to three times what they were five years ago, and the board has no choice but to pay that premium. COVID and now tariffs have also pushed the cost of repairs and replacements well above the rate of inflation.
Where CAR Comes In
The California Association of Realtors (CAR) largely sat on the legislative sidelines and expected the California Association of Community Managers (CACM) and the Community Association Institute (CAI) to work with the legislature to make substantive changes to the industry. Here is what CAR found: both organizations have little interest in meaningful change. They exist to protect the interests of the management companies that fund them, not the boards and owners those companies manage. They do not want manager licensing, mandatory board education, or a regulatory body to police bad actors. They are actively fighting against greater transparency and accountability for both boards and management companies.
CAR has decided this is a fight worth having. There are over 55,000 HOAs in California with 6 million owners in them, representing 40% of all California households. CAR has 180,000 members, an annual budget of $60 million, and over $100 million in reserves. CACM, by comparison, has an annual budget of $4 million with $2 million in reserves. Sacramento is CAR’s playground, and to date they have allowed CACM to operate there alongside them. That is going to change. How do I know? I am the Co-chair of the CID Task Force for CAR and will be proposing legislation to begin correcting the issues facing CIDs.
Proposed Legislative Changes
Minimum Reserve Funding Levels
Currently, an HOA is only required to have a reserve study provided to all owners. There is no obligation to actually fund that reserve account. Only Hawaii mandates a minimum reserve level at 50%, and Florida now requires a funding plan for older associations following an inspection. We are proposing a 50% minimum reserve level in California to be reached within 15 years.
Owner Access to Required Information
Many management companies are effectively holding information “hostage” and charging excessive fees to provide documents that an owner is required to give a prospective buyer. We propose that any owner, at any time, is entitled to that information at no cost. They pay their monthly dues, and access to association documents should be included in that.
Cap on Escrow Documentation Fees
Seventeen other states have already placed a cap on the fees charged to a seller at the time of sale. The two most common fees are a transfer fee, which covers updating the data to reflect the new buyer, and a demand fee, which is the cost to calculate what the seller owes the association. Management companies argue that these fees are part of their business model and that capping them would require an increase in management fees. Our position is simple: why should the few who are selling subsidize the many who are staying? Most boards are unaware of these costs and have little incentive to challenge the current model. We are considering a cap of $475.
Licensing, Enforcement, and Education
Managing a community with millions of dollars in shared assets should be a licensed activity. Managers should be required to complete coursework, pass an exam, and maintain continuing education. Passing laws without a regulatory body to enforce them is meaningless. We propose that the Department of Real Estate, or another government agency, be tasked with oversight and enforcement.
Board members are entrusted with leading their communities, and many are simply not equipped to do so. Every board member should be required to complete four hours of education within six months of their appointment or election. This can be done entirely online, from the comfort of their home.
The Bigger Picture
Ultimately, there should be a statewide database of every association in California where anyone can investigate a community at a nominal cost. Management companies should be required, at a reasonable fee, to provide the same data given to buyers at the time of a sale. Total transparency and accountability for all boards and the companies that manage them is the goal.
Have questions about how these changes could affect your community or how a well-managed association navigates these shifts? We are here to help.
