Does my association need to have a reserve study?
Every Association that has common area components should perform reserve study on some periodic basis. Unless mandated by state law, the periodic basis may vary from one Association to another based upon their particular requirements. Those states that have established specific reserve statutes generally require that reserve studies be performed on a 3 to 5 year cycle. We believe that five years is probably too long for any Association. Even three years may be too long for Association if it is performing numerous major repair and replacement activities. Information can become outdated very quickly. We also recommend that associations perform an update of their reserve study without site inspection for every year in which no site inspection is performed.
For those associations located in states where specific reserve study statutes have been enacted, associations must comply with that state law. However, even where no state law exists, it is prudent business policy to perform a reserve study. Most states hold that Association directors are subject to what is known as the prudent businessman rule. Simply stated, this means that if a prudent businessman would perform an act than the Association director should perform the same act. In our opinion, no prudent businessman would operate his business without performing some sort of long-term capital replacement budget. Therefore, we conclude that every Association should perform a reserve study on a periodic basis.
In today's economy, the reserve study is often forced upon the Association by the requirements of property buyers or lenders.