QUESTION: Can the board increase monthly dues from $470 to $495 without a meeting of the association? – Allan K.
ANSWER: Yes, it can. Approving the budget does not need to be done in a membership meeting. It can be done in a duly noticed open meeting of the board of directors.
Fiduciary Duty. Managing the association’s budget is one of the board’s duties. Directors are the ones most knowledgeable about the association’s financial condition since they review financial reports and pay the bills. By statute, boards are required to levy assessments sufficient to perform their duties. (Civ. Code § 5600.) It explains why boards sometimes raise dues when they would rather not.
20% Limitation. Per the Davis-Stirling Act, boards can increase regular assessments by up to 20% without membership approval. (Civ. Code § 5605.) The 20% is based on the association’s regular assessments of the preceding fiscal year.
Inflation. Your increase from $470 to $495 is 5.3%, which is well below the rate of inflation for 2022. Insurance for some associations increased by 400%, energy expenses increased by 13.1%, building supplies, vendor contracts, and management and legal expenses are all going up. Last year saw the largest increase in inflation since 1981. If boards don’t factor rising costs into their budgets, they will face significant shortfalls, even larger assessment increases next year, and possible special assessments. Kicking the can down the road will only cause more pain later.
RECOMMENDATION: Boards should increase their association’s budgets to keep pace with inflation.
DISCLAIMER. The Davis-Stirling.com Newsletter by ADAMS | STIRLING PLC provides commentary only, not legal advice. For legal advice, you’ll need to hire legal counsel. You can hire ADAMS | STIRLING PLC; Keep in mind they are considered corporate counsel to associations only.