The Board of Directors must
conduct a physical Reserve Study every third year when the current
replacement cost of the common area components is equal to or greater than
one-half of the Association's budget. The Directors should review the study
annually to make adjustments. The Directors should review the study annually
to make adjustments or contract an outside firm to review the update.
Legislation requires that the minimum standards for the content of the
Reserve Study include:
- Common area components the association
is responsible to maintain that have a useful life of less than 30 years.
- The expected useful life and remaining
life of each component as of the date of the study.
- Current and future cost estimates for
repair and replacement of each component.
- An estimate of the total annual
contribution required to fund the repair and replacement of these
components after consideration of the existing Association reserves
(Amendment to Civil Code 1365.5).
The annual operating budget must have a
summary of the reserves to include:
- The estimated current and future
replacement costs of each component.
- The normal and remaining life of each
component.
- Recommended cash in reserves compared to
expected cash in reserves at the fiscal year end.
- Percentage of expected cash in reserves
compared to recommended cash in reserves (Amendment Civil Code 1365.5).
Use reserve funds for the repair and
replacement of the common area components or for expenses connected with
construction defect litigation (Amendment Civil Code 1365.5). |