SB 1238 would rewrite California HOA manager duties, balcony reports and reserve rules
SB 1238 would rewrite California HOA manager duties, balcony reports and reserve rules
2026-09-09 · California · Legislation · Pending — not yet law
The largest single package of common interest development changes of the 2026 session is on the Governor's desk, and it touches manager duties, escrow disclosures, reserve spending and balcony inspection reports at once. SB 1238 is not law. It was enrolled and presented to Governor Gavin Newsom on August 31, 2026 at 6 p.m., after the Senate concurred in the Assembly's amendments 39–0 on August 27.1
Authored by Senator Aisha Wahab and introduced on February 19, 2026, the bill amends Business and Professions Code sections 11500 and 11501 and Civil Code sections 4525, 5200, 5510, 5550, 5551, 5560 and 5565, and adds a new Civil Code section 5390.2
A statutory standard of care for managers
New section 5390 would provide that a managing agent, including its employees, facilitating activities under Civil Code sections 5300, 5310 and 5500 “owes a duty of care that is prudent and provides the highest good faith effort to the association and its members.”
California has regulated what a manager must disclose and what certification a manager may claim. It has not, until now, written a standard of care for managers into the Civil Code.
Business and Professions Code section 11500 is separately amended to define “management services” expressly to include administering financial collection and reporting, implementing board directives, enforcing governing documents, administering contracts, and implementing the activities in Civil Code sections 5300, 5310 and 5500. Section 11501 reaffirms that no real estate or broker license is required.
Reserves could not fund unrelated litigation
Section 5510 would be amended so that reserve funds may not be expended for litigation unrelated to the repair or restoration of major components the association is obligated to maintain.
This is the provision that drew organized opposition. It does not bar reserve spending on construction defect or repair-related litigation; it draws a line at litigation with no repair nexus.
Balcony inspections, reformatted
Section 5551 — the exterior elevated element statute — would be restated with its existing architecture intact: inspection at least every nine years by a licensed structural or civil engineer or architect, a statistically significant sample at 95 percent confidence with a ±5 percent margin of error, application to buildings with three or more attached multifamily units, and a first inspection deadline of January 1, 2025.3
What changes is the report. Its first page would have to state the total number of units, the units with exterior elevated elements, the total number of elements, the number inspected, and a categorization of elements by repair urgency. Where an inspection finds an immediate threat to safety, the association must notify local code enforcement within 15 days and prevent occupant access until repairs are approved.
What it would change for boards and managers
The manager standard of care is the provision with the longest tail. A statutory duty phrased as “prudent” and “the highest good faith effort” is new language without California case law construing it in this context. It runs to the association and its members — which is a wider set of people than the party to the management contract. Management agreements drafted around contractual limitation-of-liability and indemnity provisions were not written against a statutory duty owed to members, and would warrant review by both sides.
Reserve spending on litigation needs a repair nexus, documented. The section 5510 restriction turns on whether litigation relates to repair or restoration of a major component. Construction defect litigation over a failing envelope plainly does. A governance dispute, an election challenge, or an enforcement action against an owner plainly does not. Boards funding litigation from reserves would need the characterization made and recorded at the time of the expenditure, not reconstructed later.
The 15-day code enforcement notice is a hard deadline with an occupancy consequence. Where an inspection identifies an immediate threat, the association notifies local code enforcement within 15 days and prevents access until repairs are approved. Preventing access to a balcony or walkway that serves as an owner's egress is an operational problem that needs a plan before the report arrives — not after.
The first-page summary changes what boards can see at a glance. Requiring unit counts, element counts, elements inspected and urgency categories on page one addresses a real complaint: that sampled inspection reports have been difficult for volunteer boards to read against the whole building. It also creates a document that a lender, an insurer or a prospective buyer can read quickly — which cuts both ways for an association with deferred repairs.
Escrow disclosure gets more specific
Section 4525 would require documents to be provided “as soon as practicable,” and on separate request would require the owner to identify locations in inspection reports showing the number of exterior elevated elements and impacted units, elements needing repairs exceeding $10,000, and reserve study information on exterior elevated element maintenance responsibility and funding.
For managers who assemble resale disclosure packages, this converts a document-delivery task into a document-analysis one. Identifying which elements carry repairs above $10,000 requires reading the engineer's report, not just attaching it.
Reserve studies absorb the balcony numbers
Section 5550 would require a reserve study at least every three years where major components' replacement value is at least half the gross budget, and would require the study to include section 5551 repair costs. “Major components” would expressly include exterior elevated elements and utility lines. Sections 5560 and 5565 carry the same repairs into the reserve funding plan and the reserve summary.
Operative January 1, 2032, the study must also identify the minimum contribution level keeping the reserve balance above zero over 30 years — the same date and the same test as AB 2050, which independently amends section 5550. If both bills are signed, the chaptering order determines the final text of that section. That is a genuine unresolved question for anyone budgeting toward 2032.
What to watch next
The Governor must act by September 30, 2026.4 A veto ends the bill; the two-year session has closed and nothing carries over.
Two overlaps resolve only when chapter numbers are assigned: section 5550 with AB 2050, and the addition of manager fee statements to section 5200, which AB 739 also makes. A 2027 compliance calendar built from bill text alone is provisional until the chaptered versions are published.
Related California HOA Topics
- SB 1238, California Legislature — bill status and complete history (enrolled and presented to the Governor August 31, 2026) ↩
- SB 1238, California Legislature — bill text and Legislative Counsel's Digest (adding Civil Code § 5390; amending §§ 4525, 5200, 5510, 5550, 5551, 5560, 5565 and Bus. & Prof. Code §§ 11500, 11501) ↩
- Civil Code § 5551, California Legislative Information — exterior elevated elements, current operative text ↩
- 2026 Tentative Legislative Calendar, California State Senate (September 30 last day for the Governor to act) ↩
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