If RUL=0, do we Have to do the Project?

An attendee at one of our webinars earlier this week (click here) asked if it was ok to defer a project with a Remaining Useful Life (RUL) of 0 until the following year, and how that should be communicated in the Reserve Study. Deferring a project can be done, but it is a decision made by the Board, and something the Board communicates in a document separate from the Reserve Study. The Reserve Study is where the association communicates to the members the status of the physical components, the preparedness of the Reserve Fund to deal with those projects, and the ongoing contributions to the Reserve Fund necessary to offset that ongoing deterioration.

We sometimes have clients suggest “we won’t do that this year, we’ll wait for a couple more years” when the project is clearly “due” to be accomplished at this time (the paint is dry and curling, the ironwork is rusting, the asphalt is dry and cracking, the carpet in the rec rm is stained and matted, etc.). That is a strategic decision the Board makes. We have a responsibility to report the truth of the situation to readers of the Reserve Study.

So just because a RUL shows zero, the Board is not required to accomplish that project. The Reserve Study should be a document that truthfully shows that the life of that asset has been fully “used up”, and that it is due for replacement. The strength of the Reserve Fund (the Percent Funded) will then be calculated on the basis of the actual needs of the association. This is all so the Reserve Study will stand as an accurate disclosure of the physical and financial status of the association.

The Board of course may choose to defer some projects, but every year the Reserve Study provides a benchmark providing its readers a realistic assessment of the condition of the common area assets the association is responsible to maintain, and the association’s financial preparedness to handle those projects.

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6 Responses to If RUL=0, do we Have to do the Project?

  1. Mike Miller says:

    Do many HOA’s communicate their reserve studies to all homeowners? Ours never does. I didn’t know there was such a thing until I joined the board.

    If they do communicate, I think the executive summary would be sufficient. I received our study vial email in Feb. and I still haven’t digested the whole thing.

    • Mr. Miller – we encourage two purposes of a completed Reserve Study – budget planning and disclosure. We create our Reserve Study with a “3-Minute Executive Summary” near the front, giving our clients a simple and effective summary they can distribute to their owners. Other clients provide the login information to see the complete Reserve Study themselves, should they so desire (eliminating the need to print anything out for their homeowners).

      I would encourage all associations to regularly communicate the answer to “so… how are we doing?” with respect to Reserves to their homeowners every year. We try to make it easy for our clients to do just that.

  2. Dan Kessler says:

    Our association has had two studies performed, one on site & off site. While the recommendation may be to provide the “3 minute Executive Summary” to all members, we chose to provide them with the full report, after all they spent the money, it’s their report. Like with all the information provided to members some will read it and some will ignore it to their detriment and only when something happens do they suddenly take an interest. At least by providing the information upfront it takes away any questionable action by the board members by being transparent.

    • Dan – we are very interested in having homeowners understand their Reserve Study. If that is facilitated by distributing the entire Reserve Study, great! That is one of the reasons we provide the Reserve Study electronically, to aid in potential distribution. Another option is to give them the username/pw to access that same information online.

  3. I have seen the useful live of elevators estimated at 25 years and 30 years. I think with a lot of reserve components UL estimations there is some grace period room. Is it ok to use these things up until they break down or fall apart, or is the risk of an injury, lower property value, and unhappy owners too great? I guess a lot of it comes down to the politics within the HOA

    • James – there is “grace” as you suggest, but it is dependent on physical issues (usage, exposure to weather, quality of materials, expectations of the community, etc.) and the type of component (click here for an article on different failure modes for different types of components). For some components, depending on their failure mode, it is best to be proactive and do them “on schedule”. Some different types of components are ok to wait until they fail.

      The best decisions are not left to politics.