Reserve Study Laws & Legislation

National Reserve Study Legislative Recap: as of 12/2011, 30 states have specific Reserve Fund legislation.

Where no state-specific Reserve Study or reserve funding legislation exists, there are four factors that influence prudent common industry practice on a national level.

Reserve Study Laws or Reserve Funding Legislation, by State

Alabama
Association is empowered to adopt and amend budgets, including Reserves, to pay for common area expenses.  Current Reserve balance and contributions must be disclosed to prospective buyers. See Alabama 35-8a-302

Alaska
Has not adopted any specific statutes related to Reserve Studies.

Arizona
The Board of Directors is required by state statute to discharge their duties in good faith, under the prudent person test, acting in the best interests of the corporation. Current Reserve balance must be disclosed to prospective buyers.

Arkansas
Has not adopted any specific statutes related to Reserve Studies.

California
Reserve Study updates are required annually. The Board of Directors is required annually to compile current year Reserve Study information, make decisions, develop a budget based on that information, and disclose that information (communicated on a specific Disclosure form) to the owners, as part of the annual budget process. The Reserve Study must be based on a diligent, visual inspection at least every third year. See California Civil Code Sections 5300, 5550, 5560, and 5570.

Colorado
Associations must have a “policy” that addresses when a Reserve Study is going to be done, whether the financial analysis included a physical analysis, and a disclosure of any funding plan designed to pay for anticipated reserve expenses. See Colorado Revised Statutes (CRS) 38-33.3-209.5 IX

Connecticut
Annual budget must include “adequate” Reserve contributions. Resale disclosure statements must include current Reserve balance. See Connecticut Common Interest Owners Act (CCIOA), General: Section 47-202, Budget: 47-261e, Resales: 47-270

Delaware
Annual budget must include Reserve contributions “sufficient” to achieve the level of funding noted in the Reserve Study. Minimum contributions to Reserves vary based on the Reserve Study or a statutory formula based on number of common area components (i.e.: with four or more common area component categories, Reserve contributions must be at least 15% of the total budget). See Delaware Title 25, Section 81-315

District of Columbia
Has not adopted any specific statutes related to Reserve Studies.

Florida
Annual budget requires computation and funding for “capital expenditures and deferred maintenance” (i.e. Reserves). However, once the Reserve budget has been computed, the Association members may vote to waive their Reserve funding requirements (i.e., not fund Reserves).  If the Reserve funding requirement is waived, that determination must be disclosed to owners on the first page of the annual budget.

Georgia
Has not adopted any specific statutes related to Reserve Studies.

Hawaii
Reserve Study updates are required annually. Annual budgets shall be based on the amount of money in Reserves, and shall make appropriate Reserve estimates for the future. The Board of Directors is required to annually review the association’s Reserve Funding Plan. Reserve Funding Plans must at a minimum pursue one of two stated objectives (Baseline Funding, or a Threshold minimum 50% Funded). Full Funding is suggested, but not required. See Hawaii Revised Statutes (HRS) 514A, 514B-148 (for Condominiums), 514E-10.3 (Timeshares)

Idaho
Has not adopted any specific statutes related to Reserve Studies.

Illinois
Annual budget requires computation and provision for “reasonable Reserves”. Board of Directors is required to disclose Reserves contributions made over the previous year. See Illinois Condominium Property Act 9(c)(2)

Indiana
Annual budget must include establishment and maintenance of Reserves.

Iowa
Has not adopted any specific statutes related to Reserve Studies.

Kansas
Has not adopted any specific statutes related to Reserve Studies.

Kentucky
Annual budget requires all owners to contribute towards the expenses of maintaining the replacement Reserve Fund.

Louisiana
Has not adopted any specific statutes related to Reserve Studies.

Maine
Has not adopted any specific statutes related to Reserve Studies.

Maryland
Annual budget required to provide for Reserves, but does not require a specific level of reserve funding.

Massachusetts
Annual budget required to provide an “adequate portion” toward Reserves or that the Association maintain an “adequate replacement Reserve fund”.  However, this requirement may be overridden by a 67% vote of the beneficial interest in the Association at an Annual Meeting. Slightly different wording for Co-Ops and Condominiums. See Massachusetts General Law, Chapter 183A, Section 10(i)

Michigan
Requires the Reserve contributions to be at least 10% of the total budget, but also requires a disclosure stating that this 10% minimum may prove to be inadequate for any one particular Association.

Minnesota
Annual budget required to provide “adequate Reserve Funds” and replacement reserves projected to be adequate, together with past and future contributions, to fund the replacement of those components of the Common Interest Community (CIC) which the Association is obligated to replace due to ordinary wear and tear or obsolescence. The projection must be based on the estimated remaining useful life of each component, but replacement reserves need not be segregated for specific components. Unless the declaration provides otherwise, replacement reserves are not required for (i) Components with a remaining useful life of more than 30 years, (ii) Limited common elements, if their replacement cost will be assessed against the units to which they are assigned, (iii) Certain other components that an Association plans to fund by other assessments, subject to statutory requirements, or (iv) non-residential CICs. The Association may not borrow from replacement reserves or commingle them with operating funds, but may pledge replacement reserves as security for a loan. See Minnesota 515B.3-114, amended January 1, 2012.

Mississippi
Has not adopted any specific statutes related to Reserve Studies.

Missouri
Requires resale certificates accurately disclose the projected budget including Reserve contributions and current Reserve balance. See Missouri Uniform Condominium Act, Section 448.3-102, 448.4-103, 448.4-109

Montana
Has not adopted any specific statutes related to Reserve Studies.

Nebraska
Has not adopted any specific statutes related to Reserve Studies.

Nevada
Reserve Study updates are required at least every five years, along with an annual review of this study to determine if Reserves are sufficient, and adjustments as necessary. Nevada is the only state where it takes a special license (Nevada Reserve Study Specialist) to perform a Reserve Study. See Nevada NRS 116.31152

New Hampshire
Has not adopted any specific statutes related to Reserve Studies.

New Jersey
Requires Associations to collect assessments for the cost of common expenses, including the replacement of common elements (i.e., Reserves). See New Jersey Statute 46:8b-14a

New Mexico
Sellers must present prospective buyers with a disclosure stating the current Reserve Balance and the amount in the budget allocated to Reserves.

New York
The Board must disclose Useful Life and Replacement Costs of capital improvements and repairs (i.e., Reserve components) . Directors of Co-Ops must “periodically set aside reasonable sums” for Reserves.

North Carolina
Sellers must present prospective buyers with a disclosure stating the current Reserve balance and the amount in the budget allocated to Reserves.

North Dakota
Has not adopted any specific statutes related to Reserve Studies.

Ohio
The Board of Directors is required to adopt and amend budgets in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments. Requires Reserve contributions to be at least 10% of the total budget. However, this requirement may be waived by a majority of voting unit owners. See Ohio Revised Code 5311.081(A)(1)

Oklahoma
Has not adopted any specific statutes related to Reserve Studies.

Oregon
Association communities must establish a Reserve account for all items on a common property requiring replacement in more than three and less than thirty years. Communities may vote to increase, reduce, or eliminate Reserve contributions on the basis of a 75% approval vote from the owners. See Oregon Condominium Act, ORS 100.175

Pennsylvania
Resale disclosures must indicate the amount set aside in Reserves for future capital projects.

Rhode Island
Has not adopted any specific statutes related to Reserve Studies.

South Carolina
Has not adopted any specific statutes related to Reserve Studies.

South Dakota
Has not adopted any specific statutes related to Reserve Studies.

Tennessee
Has not adopted any specific statutes related to Reserve Studies.

Texas
The Board is empowered to collect assessments for the cost of common expenses, including the replacement of common elements (i.e., Reserve components). The current Reserve Fund status must be disclosed to prospective buyers. See Texas Uniform Condominium Act (UCA) 82.102.2, 82.157

Utah
Reserve Study updates are required no less frequently than every two years.  See Utah Section 57-8-7.5, effective July 1, 2012

Vermont
Resellers must disclose the amount of Reserves set aside for capital expenditures.

Virginia
Reserve Study updates are required at least every five years, and must be reviewed annually and adjusted as necessary to keep the funding of Reserves sufficient. Condominium resale certificates must disclose a projected budget which includes provisions for Reserves and capital expenditures. See Virginia Condominium Act Section 55-79.83:1

Washington
Condominium and Homeowner’s Associations with significant assets, defined within RCW 64.34.020(38) and RCW 64.38.010 (19), are required to conduct and disclose Reserve Studies annually. At minimum every three years, the Reserve Study update must be based upon a visual site inspection by an independent Reserve Study Professional. Condominiums must provide current Reserve Study information to prospective buyers or issue a specific disclaimer if none exists. Both Condominiums and HOA’s must provide specific reserves disclosures as part of the annual budget making process.

West Virginia
Has not adopted any specific statutes related to Reserve Studies.

Wisconsin
Reserve accounts must be established. However, condominium associations created before November 1, 2004 may opt out of this requirement. If the Reserve account exists, it is to be funded based on the consideration of the cost of repairing or replacing common elements. If no Reserve account exists, a statement must be prepared explaining how it is anticipated that future expenditures for the repair and replacement of common elements will be funded. See Wisconsin 703.163

Wyoming
Has not adopted any specific statutes related to Reserve Studies.

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