It is our understanding that the purpose of the CA Civil Code 1365.2.5 form is to summarize Reserve Study results and clarify the current status of an Association’s Assessments and Reserves in a standard format on an annual basis, minimizing the chances of misrepresentation or surprise.
A Reserve Study helps the Board assemble a responsible budget to care for the Association’s major common area repair and replacement responsibilities, and disclose the Association’s Reserve Fund status to its members. The individual projects listed in the Reserve Study (roofing, painting, asphalt, elevator, etc.) are very different from an Association’s “total insurable value”.
Fund accounting segregates money according to different uses (Operating, Capital Replacement,
Capital Improvement, etc.). The concept of fund accounting is based on the nature of the
expense incurred by an association,
“How do I reserve? Let me count the ways” is not exactly what Elizabeth Barrett Browning had
in mind when she penned her famous poem about love, but if you have 37 different Reserve
components, how many Reserve contributions do you make and track each month? One or 37?
There is a good answer.
Instinctively, we all know that large associations with many common area amenities in need of replacement should have a high Reserve Fund balance. Similarly, newly constructed small associations with only a few common area amenities have little need for much of a Reserve Fund balance.
What is the difference between a Capital Improvement and a Reserve project? Or more
specifically, when can a Capital Improvement be more properly considered as a Reserve
expense? This question becomes important to Association-governed communities s they
consider what funds can be used
