REQUIREMENTS OF RESERVE STUDY
How often is a homeowners association required to obtain a reserve
The California Civil Code requires associations to complete reserve
studies every three years and to review them for accuracy each year.
Reserve studies are excellent for planning and generally eliminate
the need for special assessments as well as the liability associated
with special assessments. Top
WHAT IS A
What is a reserve study?
It is a written report that evaluates the common area of the association.
It provides guidance on how much your association should be setting
aside each month for reserves so it can meet its future obligations
without special assessments. Reserves are needed to pay for the
replacement of common area components such as roofs and parking
lots and to pay for major maintenance items such as exterior painting.
The California Civil Code sets forth the minimum requirements for
reserve studies. Your association's management company should have
the in-house expertise to prepare a reserve study since it is part
of the budgeting process. Top
OF RESERVE FUNDS
Our homeowner association in Beverly Hills recently lost money on its mutual fund
account. Is a board of directors allowed to invest association funds
in a mutual fund?
Absolutely not. All funds must be placed in an insured account in
a bank, savings and loan association or credit union. Top
We live in a small homeowners association in Burbank. Can our board of directors
waive the legal requirement for a reserve study?
OF RESERVE STUDIES
Our homeowners association has not obtained a reserve study for
more than four years. We do obtain audits each year. Can an audit
report be truly accurate if we don't have a current reserve study,
when the audit is completed?
No. Without a current reserve study, the balance sheet included
in your audit report will reflect the numbers on your books, but
it will not reflect your association's current, actual liability
for future replacements. This liability may be substantial.
The California Civil Code
requires associations to complete a reserve study every three years
and to review it for accuracy each year. Not only are reserve studies
required by law, they are excellent planning tools. Top
Our board of directors refuses to obtain a reserve study for our
homeowner association. Can board members be held legally liable
for negligence if they won't obtain a reserve-study?
Yes. Negligence is a civil wrong (tort) that has the following elements:
(1) The defendant must
owe a legal duty to conform to a certain standard of care for
the protection of the plaintiff,
(2) The defendant must
have breached his duty by failing to conform his conduct to the
(3) The breach must be
a legal cause of the plaintiff's injury, and
(4) The plaintiff must
have suffered actual harm.
The California Civil Code,
with few exceptions, requires the board of directors of an association
to obtain or prepare a reserve study at least once every three years.
Whenever a board is required by law to do something, it owes a legal
duty to act accordingly. Failing to obtain or prepare a legally
required reserve study constitutes a clear breach of duty. If such
a breach causes harm to members of the association, the legal elements
of negligence have been satisfied and the members may successfully
prevail in a suit.
Failure to obtain a serve
study can result in any one or more of the following types of harm:
(1) It may result in
a large special assessment being imposed which some members of
the association may find difficult or impossible to pay.
(2) A member of the association
may find it difficult to sell or refinance his or her home which
may cost money or even result in a foreclosure. Buyers and lenders
are becoming more knowledgeable and are often refusing to become
involved with associations that do not comply with the law.
(3) Owners may suffer
the consequences of being a member of an association involved
as a defendant in litigation brought by another member. Top