You expect your roof to last 20 years, but after 15 years you are having leaks everywhere. Your pool heater is a lemon and after three years you are convinced any more repairs would be a waste of money. Your last paint job is simply not cutting it. You need to spend Reserves earlier than planned. What do you do?
First, remember that your primary responsibility is to the association, that its assets be protected, maintained, and enhanced. The Reserve Study and the Operating Budget are designed to support these objectives. It is inappropriate to have the association suffer in an attempt to “not exceed the budget”. The budget supports the association, not vice-versa.
When a treasurer calls our company asking what to do when their roof is leaking heavily and their 10-yr-old Reserve Study says the roof it should last five more years, we tell them to get off the phone with us and call a roofer and get the roof fixed!
Second, update/adjust your Reserve Study. This is for three reasons:
- The Reserve Study needs to accurately reflect the current physical condition of the components. If the roof has been replaced, that is what the Reserve Study should say. You should not have a 5-yr old Reserve Study that indicates two more years of life on the old roof!
- The early expenditure of funds will probably drop the Percent Funded (strength) of the association. That is an important disclosure that should be made annually to the membership, and they have a right to be correctly informed (not surprised).
- Finally, the Reserve Study should be updated because the expenditure of funds outside of what was expected will change the amount of Reserve contributions that should be collected from the homeowners. A mid-year change is not necessary, but it would clearly be a mistake to wait years before adjusting the Reserve contributions to begin reimbursing and rebuilding the Reserve Fund.
Bottom line: a Reserve Study is a plan that due to economic factors, quality of workmanship, quality of materials, changing usage patterns, extreme weather, or any of a number of other ongoing and surprise factors needs to be updated annually.