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

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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.