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Reserve Study & Funding Policy |
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Planning for future repairs and replacements is one of the most critical things a homeowner association should do. A Reserve Study is a long range planning tool that identifies common area building and grounds components that have useful lives of 2-30 years, the current cost of repair or replacement and a fair Funding Plan to accumulate the money to accomplish the work. Having a written Reserve Planning and Funding Policy is equally important. It is a policy that commits the HOA and Board to the reserve planning process and holds future Boards to the standards. Without it, a future Board might decide on its own to set the plan aside or worse, spend reserve funds on something they were never intended for. The following sample policy can also be used to craft an amendment to the governing documents which must be voted on by the members. |
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WHEREAS, Section ___ of the Bylaws of Nottacare Condominium grants the general power to conduct the business and affairs to the Board of Directors; and WHEREAS, the Board of Directors has the responsibility to plan for the proper maintenance, repair and replacement of the common area; and WHEREAS, the members have the responsibility to fund the proper care of common area; and, WHEREAS, proper care of the common area directly impacts the value of members' homes, NOW, THEREFORE, BE IT RESOLVED THAT in order to properly maintain the common area, protect market value of members' homes and livability in the community, the Board of Directors establishes a policy as follows: Reserve Study Defined. The Board of Directors shall have a Reserve Study performed that includes this criteria: List of Components Criteria. All components shall be included that are the homeowner association's responsibility to repair or replace that have a useful life of 2 to 30 years. Basis for Repair/Replacement Cost. Assigns a reasonable cost of repair or replacement to each component based on current costs for the area. Component Useful Life Criteria. Assigns a reasonable useful life to each component based on local conditions. Projection Period. A 30 Year Repair & Replacement Schedule shall identify the years when each component work will be performed including the inflation adjusted cost. Funding Plan. The Reserve Study shall use a 30 Year Projection Period which takes into consideration the costs of repairs and replacements, contributions from members, impact of inflation, revenue generated from invested reserve funds and taxes owing on interest earned. The Funding Plan shall include contributions from members adequate to meet projected costs without the need for special assessments which are collected annually according to the normal fee collection schedule (usually monthly, quarterly or annually). Percent Funded. The Funding Plan shall include a "Percent Funded" factor (percent of actual reserve funds on hand versus the ideal of 100%). If Percent Funded balance is below 100%, the Funding Plan shall provide regular contribution increases over coming years to attain the 100% level without special assessments, if possible. Permitted Uses of Reserve Funds. Reserve funds are to be used only for the specific components identified in the Reserve Study. Borrowing Reserve Funds. The Board of Directors may borrow money from reserves for emergencies or unexpected expenditures however, the money must be repaid with reasonable interest within one year. Investing Reserve Funds. In order to reduce the amount of member contributions, the Board of Directors shall invest reserve funds to generate interest revenue that will accrue to the reserve funds balance. Unless otherwise approved by the membership, all investments will be insured by private insurance against loss or guaranteed by the United States Government. Investments should take into consideration the repair and replacement schedule so that there is no interest penalty for early withdrawal. The Board of Directors may hire an investment counselor to assist in formulating an investment plan. The Board of Directors shall review the reserve fund investment plan at least annually to ensure that the funds are receiving competitive yields and make prudent adjustments as needed. Annual Review & Revision. The Board of Directors shall review and revise the Reserve Study annually to reflect changes in costs, inflation, interest yield on invested funds plus modification, addition or deletion of components. With this revised information, a new 30 Year Reserve Study projection shall be used in conjunction to assist in the annual budget process. Who Performs the Reserve Study, Annual Review & Revision. To ensure objectivity and competence, the Board of Directors shall hire only a third party professional with experience, references and credentials to do reserve planning analysis. Recorded in the Book of Minutes on ______________, 201___ _________________________________ Attested to by: _________________________________ © Copyright by
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