Don’t Forget to Conduct a Reserve Analysis by July 1!

By Curtis G. Kimble.

The deadline for all HOA and condominium boards in Utah to conduct a “reserve analysis” is fast approaching.  By July 1, every  board (except developer-controlled boards) needs to obtain or perform a reserve analysis if no reserve analysis has been conducted since March 1, 2008.

A reserve analysis is an analysis to determine:

(a)     the need for a reserve fund to accumulate money to cover the cost of repairing, replacing, and restoring common areas and facilities that have a useful life of three years or more, but excluding any cost that can reasonably be funded from the general budget or other funds of the association; and

(b)     the appropriate amount of any reserve fund.

So, each board must:

  1. determine which improvements have a useful life of 3 years or more, then
  2. determine what the cost is for maintaining those improvements over the next several years, and then
  3. determine what they think the appropriate amount of the reserve fund should be.

There are no requirements in the law as to who has to perform the reserve analysis.  So, a board can perform the analysis or it can engage a professional to perform it.  There are several competent reserve study professionals serving the state of Utah.  There are also websites that will create your reserve study for you based on your input, and some will allow users to run “what if” scenarios with their components and funding plans.  A simple Google search will lead to those sites (I cannot vouch for the quality or value of such online services since I’ve never personally used them or analyzed their results).

There are many options when it comes to fulfilling the requirements of this law.  Each association should find the option that works best for them.

Don’t forget the law also requires each board to, annually, present the reserve study to the homeowners at the annual homeowner meeting or at a special meeting of the homeowners, and provide an opportunity for homeowners to discuss reserves and to vote on whether to fund a reserve fund and, if so, how to fund it and in what amount.  The association must also prepare and keep minutes of the meeting and indicate in the minutes any decision relating to funding a reserve fund.

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5 Responses to Don’t Forget to Conduct a Reserve Analysis by July 1!

  1. Joel W. Meskin, Esq., CIRMS says:

    Notwithstanding the statutory requirements, as an underwriter for community assocaition directors and officers liability insurance, it is our belief that a properly completed and funded reserve study is the keystone to a community associations risk management program and to the over all health of the community association. Whether the insurance application asks for it or not, I recommend that any association that has a current study and it is properly funded should proactively advise the underwriter.

  2. Jan Yergensen says:

    What can the residents do against the HOA if they were aware that a Reserve Study was by law to be completed by July 1, 2012, and the Board failed to do so. The President and Vice President stated they don’t think it is necessary. The Vice President when I question the failure to do so told me he did not want to talk about it any further, end of subject, the Board would not discuss it further with the residents and we should drop the subject.

    • Curtis G. Kimble says:

      The statute does not provide any specific penalties or remedies for noncompliance. So, the remedies available to the residents when a board fails to comply would be similar to the remedies available any time they feel the board isn’t fulfilling their duties.

      The chief remedy in the event of dissatisfaction with board actions is that the residents can elect directors that will comply with the law. HOAs are representative governments and the board members serve at the pleasure of the homeowners. If the homeowners don’t like what the board is doing, they simply need to elect different board members.

      Alternatively, the residents could hire their own attorney to pursue the rights of the owners and seek compliance by the board with the law, or to simply obtain an opinion as to whether this particular statute applies to their association. There are situations when the statute does not apply – during the period of developer control, for instance, as well as when an association isn’t governed by, or subject to, the Utah Condominium Ownership Act or the Utah Community Association Act (such as cooperatives or non-residential property owner associations).

  3. Norman Rowe says:

    I have researched the term “reasonable” and”reasonable time” there is no time limit as to what is reasonable.What is reasonable to you may not be reasonable to me. Our HOA does not consider hazardous, life threatening or dangerous conditions,as a chain of time to remedy,repair or fix, although “reasonable” refers to a time frame according to the need of urgency or the danger. Does this sound reasonable to YOU?!!?

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