How Often Should You Update your Reserve Study?

By: Robert M. Nordlund, P.E.

What is "proper" or "prudent" Reserve planning? With Reserve contributions making up 15% to 25% of the typical Community Association's budget, this is an important question. So let's look at the issues…

Reserve contributions allow you to strike a balance between ongoing deterioration and the association's financial assets. The more deterioration there has been, the larger the association's financial assets should be. With each Reserve component deteriorating at different rates and with financial assets also subject to change each year, these two are continually getting out of balance.

First, from a Boardmember responsibility (liability) viewpoint, for a line item as large as Reserve contributions, it is appropriate to re-evaluate Reserves annually to comply with "sound business practice". Second, most Governing Documents require an "appropriate" amount of Reserves to be collected each year to offset ongoing deterioration of the common areas. That number needs to be adjusted annually in light of changes to the association's natural physical and financial changes. Third, in August of 1991 the American Institute of Certified Public Accountants (AICPA) issued guidelines (generally accepted accounting principles, or GAAP) stating that Reserve planning is recommended annually as part of the budget planning and financial reporting process. Finally, different states (such as California and Hawaii) specifically require Reserve planning to be done as part of the annual budget preparation process. California law even goes so far as to require a diligent on-site inspection at least every third year. In the State of Washington, Reserve planning is required to support disclosures which must be made prior to the sale of a unit.

So…review and adjust each year. Perform a more exhaustive update at least every third year, as association physical and financial changes dictate.


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