Reserve Studies and Community Associations
What is a reserve study?
Community associations, such as condominium associations, homeowners associations, and cooperatives, often have budget planning studies conducted to identify the current financial shape of their reserve fund, a fund meant to ensure the association remains in good repair without the need to impose sudden special assessments, or to seek funding from third party sources. This project is referred to as a reserve study. The reserve study permits a community association to determine how long it will be before its assets need repair or replacement, and to estimate the cost of such upkeep.
Who must obtain a reserve study?
The Washington legislature has determined that reserve studies provide information vital to assessing the financial health of community associations. As a result, the legislature has required most community associations to obtain reserve studies.
The Washington Uniform Common Interest Ownership Act (Chapter 64.90 RCW), and specifically, RCW 64.90.080, has applied the chapter’s reserve study requirements to “old act” condos (RCW 64.32), “new act” condos (RCW 64.34), and homeowners associations (RCW 64.38), among other community associations. Inconsistent provisions in those old chapters no longer apply.
RCW 64.90.545 does have some carveouts. For example, the reserve study requirements do not apply:
- To certain non-residential use communities (also discussed in RCW 64.90.100);
- To common interest communities with “nominal reserve costs” defined in RCW 64.90.010(34) as when the replacement costs are either: (1) less than 50% of the annual budgeted expenses, excluding reserve fund contributions, for condominiums and cooperatives with horizontal unit boundaries; or (2) less than 75% for all other communities; and
- Where the cost of the reserve study or update exceeds 10% of the Association’s annual budget.
Reserve studies must include rather extensive information, much of which is outlined in RCW 64.90.550.
What if a community association fails to conduct a reserve study when required?
Under RCW 64.90.555, one or more unit owners can pursue a lawsuit against the association to enforce the reserve study requirements, and a court may order specific performance, and award reasonable attorney’s fees and costs to the prevailing party. Owners cannot, however, seek damages.
If you are on the Board of Directors for a community association, or if you own property within a community association, and you need guidance on any matters that arise regarding your association, please feel free to contact Beresford Booth at info@beresfordlaw.com or by phone (425) 776-4100.