Understanding the Board’s Role in Connection with Association Reserve Studies

State laws and the governing documents for a homeowners association typically contain provisions that mandate the establishment and maintenance of a “reserve fund” for the accumulation of money that will be required in the future to repair, replace, restore, and/or maintain the various components that exist within the association which are part of the common area. Additionally, it is common for mortgage lenders to require reserve studies and the maintenance of appropriate levels of reserves as a condition of financing the purchase of separate interests that are part of a homeowners association.

The proper maintenance of a reserve fund necessitates the periodic preparation of a “reserve study,” which consists of a detailed list of the different common area components that exist within the association accompanied by: (i) an indication of the cost to repair or replace each component; and (ii) an estimate of the remaining useful life of each component. Thus, the reserve study is a tool that the association’s board of directors can rely on to determine how much money is needed to properly maintain all of the common area components, and when that money will be required for appropriate repairs and/or maintenance of the common areas.