Do we have to do a reserve study? The simple answer is yes, In Washington State an association must do a reserve study and update it annually unless it is exempt.
In early versions of Washington’s Condominium Act associations did not have to do a reserve study if it was a “financial hardship.” The law did not define financial hardship which was confusing to many associations. Many association’s felt the cost of the reserve study was too expensive, so they declared reserve study’s a financial hardship. In 2011, the lawmakers have clarified the the conditions in which an association would be exempt.
SOME VERY SMALL ASSOCIATIONS ARE EXEMPT but not from all requirements
For some reason many small condominium and HOA’s don’t want to be encumbered with paperwork and required to take financial steps. We get that and so did the lawmakers. So the lawmakers added an exemption for small association:
“If the cost of the reserve study exceeds five percent of the association’s annual budget, the association does not have significant assets, or there are ten or fewer homes in the association.”
Unfortunately in our experience these were the association that were in the most need of guidance for future expenses. The exemption does not waive some of the other reserve requirements. The board should have a reserve funding plan, a separate reserve fund saving account and provide an annual disclosure to members including whether there will be special assessments. Unfortunately many small associations skip all the reserve requirements because they stopped when saw they were exempt.
Exempt associations should create their own reserve plan and fund it accordingly. If a large expense is coming, then the association needs to disclose it to the members what the costs will be and when the assessment will be.”