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

June 12, 2012

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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The Results Are In: The 2012 Utah Legislative Session

March 8, 2012

By Curtis G. Kimble.

The 2012 general session of the Utah Legislature ends tonight at midnight and only one small change to a current law and no new laws affecting condominiums and homeowners associations were passed this year.  This is probably welcome news to the many boards and management committees that were likely more than a little overwhelmed by last year’s many changes.

The only change this year is to the law regarding reserve studies.  A board is required to conduct a reserve study every five years and to review and update it every two years.  But, when S.B. 56 goes into effect on May 8 of this year (assuming it’s signed by the Governor), a board will only have to conduct a reserve study every six years and review and update it every three years.  While industry professionals generally agree that a reserve study should be updated more frequently than that, even annually, and many states require an annual review and update of a reserve study, this change to the law will take some pressure off boards.

No other new laws or changes affecting condos and HOAs will go into effect this year.  Next year, expect to see more significant changes proposed that haven’t been seen yet.  I have a feeling we can also expect to see that Ombudsman bill (H.B. 56) that I explained here proposed yet again.


Never Happen in Your HOA? Think Again. Risk Management Is More Important Than Ever.

September 30, 2011

Ignorance is not bliss.  A recent Indiana case highlights the need for homeowners associations to diligently seek out and limit their liabilities.  In March 2011, a jury found an Indiana homeowners association 100% at fault for the drowning death of one child and the personal injury of two other children, resulting in a $30.7 million judgment against the Association.

In March, 2001, three boys were playing on property owned by a homeowners association in Indiana. The property, which contains a lake created by an earthen dam, is open for use by the homeowners.  While there, the boys walked onto the ice near the dam’s overflow crib when one fell through the ice. The other two attempted to aid their brother, but they both fell through the ice as well. One boy drowned.

The Association was sued for negligence.  The plaintiffs claimed the overflow crib created currents that dangerously weakened the ice near the crib from below. They claimed this created a dangerous condition the plaintiffs could not reasonably have had knowledge of, as the ice was visibly safe for walking on at all other areas of the lake.

The plaintiffs claimed that the Association was aware of this condition, but that it failed to place warning signs or restrict access to the area in violation of standard dam safety practices. They also argued that the Association should have anticipated an accident like this would occur, but that it failed to provide safety life preservers, rope or any other safety equipment near the crib.

As Joel Meskin Esq., CIRMS and Amanda L. Krenson, Esq., point out, this case is a wakeup call for all homeowners associations.  Their article reminds us of the many benefits of comprehensive reserve study: “A reserve study is a method of understanding  the HOA’s exposures to risk and liability, whether it be a lake with latent dangers, an unfenced pool, sick trees [that could fall over or with brittle branches ready to break] or the like.  Very often, counsel or management companies, without having a baseline to work from, may not be able to help the association comply with safety issues.  Many dangers and exposures may arise from elements of the association that need repair.  Again, these are items that are monitored in a reserve study.”

Once identified, any dangerous conditions on a property should have warning signs or fences.  The CC&Rs should also contain notice and warning of any such conditions.

We can mutter and disagree with this jury all we want or try to rationalize the distinction between that case and our association, but nothing will change the fact that liability faces HOAs from all directions and a concerted and focused effort is needed to limit those liabilities or risk facing the consequences.

Curtis G. Kimble


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