SB 5223 and HB 1309 extend the current requirements for reserve studies to homeowner associations with significant assets. In addition, for both condominiums and homeowner associations, the bills would provide for disclosure to current homeowners as well as prospective purchasers, and require the reserve funding plan to be a part of the annual budget adoption process. The bills encourage the establishment and funding of a reserve account, but do not require it. You can review HB 1309 here.
Current law requires condominium associations to conduct an initial reserve study by a reserve study professional, updated annually, with a visual site inspection every three years, unless doing so would impose an unreasonable hardship. In the new law an association with significant assets must have a reserve study. “Significant assets” means that the current total cost of major maintenance, repair, and replacement of the reserve components is 75 percent or more of the gross budget of the association, excluding reserve account funds.
Another changes is the contents of the reserve study. A reserve study’s reserve component list must include roofing, painting, paving, decks, siding, plumbing, windows, and any other building component that would cost more than 1 percent of the annual budget for major maintenance, repair, or replacement. If one of the components is not included, the study must explain the basis for the exclusion. The reserve study must provide a baseline funding analysis and a funding plan to provide full funding of all assets by year 30 of the study.
The board of directors must disclose information to owners regarding reserve studies with the summary of the annual budget. The list of required information is set forth in the bill and includes:
- the current amount of regular assessment budgeted for contribution from the reserve account;
- any regular or special assessments and the date of such assessments;
- the sufficiency of reserve funds for the next 30 years, and if the funds are insufficient, notice of a possible assessment; and
- the projected balances of the reserve account at the end of the next five budget cycles.
Highlights of the changes to the State Law Relating to Reserve Studies
In April 2011, the Washington State government made changes to the Condominium Act and the Homeowners’ Association Act. The changes affect the content within Reserve Studies, adds reporting of the Reserve Study results as part of the budgeting summary to owners, and extends the Reserve Study requirements to homeowners’ associations with significant assets.
What follows are excerpts from the law to help those familiar with the current requirements learn what has changed in the amendments. Full text of House Bill 1309 can be found here: http://apps.leg.wa.gov/billinfo/ by entering 1309 into the search box. There are 15 sections of the new law, which is brief:
Sec. 1: Adding/modifying definitions of terms in the Condominium Act
Sec. 2: Requiring Reserve Study information to be part of Condominium budget summaries provided to owners
Sec. 3: Establishing a Condominium’s reserve account is optional, but must be in the association’s name if made
Sec.4: Changing required content in Condominium Reserve Studies
Sec. 5: Allowing Condominiums to make an unscheduled withdrawal of reserve funds to pay for maintenance requirements
Sec. 6: Housekeeping changes to reflect changes in section numbers
Sec. 7: Adding/modifying definitions of terms in the Homeowners’ Association Act
Sec. 8: Requiring Reserve Study information to be part of the HOA budget summaries provided to owners
Sec. 9: Requiring HOAs to obtain and update reserve studies annually, like Condominiums
Sec. 10: Setting the required content in HOA Reserve Studies
Sec. 11: Allowing unscheduled withdrawal of reserve funds to pay for maintenance requirements and allowing for other purposes if the HOA adopts a payback plan and notifies owners
Sec. 12: Allowing HOA owners to demand a Reserve Study
Sec. 13: Removing liability for association representatives (boards/officers/advisors/etc) who fail to comply with these requirements
Sec. 14: Exempting HOAs who meet certain conditions from these changes
Sec. 15: Making this act a requirement as of January 1,2012