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27 <br />6557.03/12309 <br />on the estimated operating expenses to be paid during the initial year by the Association in the <br />performance of its duties (plus a reasonable provision for replacement reserves, including a reserve for <br />life safety systems not entirely within a Unit) and shall be assessed against each Condominium in the <br />Development as provided in Section 4.8 of this Declaration. The operating expense budget, including <br />reserves, shall be reviewed annually by the Board and revised periodically at the discretion of the Board <br />in order to reflect the actual operating expenses and required reserves of the Development. . <br /> <br />During each succeeding fiscal year of the Association, the Board may not impose an Annual <br />Assessment that is more than twenty percent (20%) (or any other maximum percentage permitted by law) <br />greater than the Annual Assessment for the Association’s preceding fiscal year without the approval of <br />Owners casting a majority of votes at a meeting or election of the Association at which a quorum was <br />present in accordance with Section 4.6 and conducted in accordance with Corporations Code Sections <br />7510 et seq. and 7613, and the Board must comply with Section 5605 of the Civil Code. Any such voting <br />of the Owners regarding assessments shall comply with the applicable procedures in Civil Code Sections <br />5100-5130. This Section shall not limit Assessment increases necessary for the following emergency <br />situations: (1) an extraordinary expense required by an order of a court; (2) an extraordinary expense <br />necessary to repair or maintain the Development or any part of it for which the Association is responsible <br />where a threat to personal safety in the Development is discovered; (3) an extraordinary expense <br />necessary to repair or maintain the Development or any part thereof for which the Association is <br />responsible that could not have been reasonably foreseen by the Board in preparing and distributing the <br />Budget (prior to the imposition or collection of an Assessment under this subsection (3), the Board shall <br />pass a resolution containing written findings as to the necessity of the extraordinary expense involved and <br />a determination as to why the expense was not or could not have been reasonably foreseen in the <br />budgeting process and such resolution shall be distributed to the Members with the notice of Assessment). <br /> <br />Unless the Association is exempt from Federal and State of California income taxes, all reserves <br />shall be accounted for as contributions to the capital of the Association and as trust funds segregated from <br />the regular income of the Association or in such other manner authorized by law or regulation of the <br />Internal Revenue Service and the California Franchise Tax Board as will prevent such funds from being <br />taxed as income to the Association. <br /> <br />Section 4.4 Exemptions from Annual Assessments. Notwithstanding the provisions of <br />Sections 4.3 and 4.8, the Board shall exempt each Owner of a Condominium which satisfies Section <br />4.4(a) (Condominium Buildings) and may exempt all Owners if Section 4.4(b) (Association Common <br />Area) is satisfied, from the payment of a portion of the Annual Assessment levied against that <br />Condominium as described in those paragraphs. <br /> <br />(a) Condominium Buildings. An Owner of a Condominium is exempt from <br />payment of that portion of the Annual Assessment which is allocated for defraying operating expenses <br />and reserves directly attributable to the existence and use of buildings containing Units until the first to <br />occur of the following events: (i) a notice of completion of construction of the Building in which the <br />Owner’s Unit is contained has been recorded; (ii) the Owner’s Condominium is occupied or otherwise <br />used; or (iii) the structural components of the Building in which the Owner’s Unit is contained are <br />complete. <br />(b) Association Common Area. Each Owner may be exempted from payment of <br />that portion of the Annual Assessment which is allocated for defraying operating expenses and reserves <br />directly attributable to the existence and use of a common facility (including landscaping) that is not <br />complete at the time Annual Assessments commence until the first to occur of the following events: (i) a <br />notice of completion of the common facility is recorded; (ii) the common facility has been placed into <br />7.1.K. - Page 31