directors grew frustrated with each other and resigned,5 which unfortunately happens more often that community professionals would like. Ultimately, the association was unable to undertake the required repairs before the collapse.
The Champlain Towers collapse forced lawmakers to reexamine community association statues and reserve funding requirements. At the time of the collapse, only ten states enacted laws that directly addressed reserve funding. Most states do not require associations to directly maintain sufficient reserves, nor define what “sufficient” reserves mean.6 For example, the Pennsylvania Uniform Condominium Act does not specifically require certain reserve thresholds or assessment investigations. The Pennsylvania Act just requires directors to follow the “Prudent Investor Rule” if it decides to invest a reserve fund.7 That means boards should, “invest and manage [a reserve fund] as a prudent investor would, by considering the purposes, terms, and other circumstances of [a reserve fund] and by pursuing an overall strategy reasonably suited to the [reserve fund].”8 There is no statutory guidance for boards as to reserve funding.
In response to the Surfside tragedy, the Florida Legislature appointed a task force to recommend statutory changes after Surfside.9 The task force’s findings resulted in the Florida Legislature passing Senate Bill 4-D, a law imposing “a statewide structural inspection program for aging condominium and cooperative buildings.”10 Florida already provided a more detailed reserve funding requirement for associations. Now, an association having a building three stories or higher, must “have a structural
integrity reserve study completed at least every 10 years after the condominium’s creation,”11 and those associations must fund a reserve account as provided in the statute.12 Some commentators believe that this law is going to impose a heavy financial burden on thousands of unsuspecting owners, forcing boards to quickly make up years of underfunded reserve accounts, or create completely new accounts, in compliance with the law.13
In 2022, Maryland passed House Bill 107, which requires cooperatives, condominiums, and homeowner associations to conduct reserve studies every five years and fund the reserve account as recommended in the reserve study. New Jersey has a pending structural integrity and reserve bill and it’s thought that Delaware will introduce similar legislation in 2024.
Level IV reserve studies, which apply only to communities that have not yet been constructed, are another way in which this can be mitigated. Because there is no physical property to assess, this service acts solely as a budgeting tool for developers. The component inventory, quantities, and measurements are derived from site plans, and useful life estimates are based on industry standards. A 30- year funding plan is developed to offset future capital expenditures and make sure the true cost of ownership, including accurate dues, is communicated to potential buyers.
For existing communities, there is no easy solution to underfunded reserve accounts, because not all associations are created equally. Some associations are older high rise urban buildings with hundreds of units and aging structural infrastructure. Other associations are brand new homeowner associations with limited building components. The best prepared associations often have thoughtful board members willing to engage community professionals and undertake reserve studies. Those
boards then create a long ranging plan to fund adequate reserves over the long term to minimize the financial impact on members.
Maintaining sufficient reserve funds minimizes the chances of surprise special assessments and ensures that the replacement and major maintenance needs of association- maintained assets can occur in a timely manner, thereby protecting the value of the residences in the community. With proper reserve fund planning, you are also able to assess consistent annual reserve contributions; ensuring fair and partial equity between those that have owned their units for one year or thirty years.
FOOTNOTES 1 Mike Baker and Kimiko de Freytas-Tamura,
Infighting and Poor Planning Leave Condo Sites in Disrepair, N.Y. Times, July 1, 2021, https://
www.nytimes.com/2021/07/01/us/condo-
associations-surfside-collapse.html. 2 Martin A. Schwartz and Kevin M. Koushel, Senate Bill 4-D and the Champlain Towers South Disaster: A Problem in Response to A Problem, 96-DEC Fla. B.J.
62 (2022). 3 Baker and Freytas-Tamura, supra note 1. 4-6 Id. 7 68 Pa. C.S.A § 3303 8 20 Pa. C.S.A. § 7203(a). 9 Schwartz and Koushel, supra note 2 at 62. 10 Fla. Stat. § 553.899 (2023). 11 Fla. Stat. § 718.112(2)(g) (2023) 12 Fla. Stat. § 718.112(2)(f)2.a (2023) 13 Schwartz and Koushel, supra note 2 at 64.
ABOUT THE AUTHORS Michelle Baldry, RS, PE, PRA is Reserve Advisors’ Northeast Regional Executive Director. Michelle is a professional engineer and holds CAI’s Reserve Specialist and Educated Business Partner designations. She is President of CAI’s Foundation for Community Association Research Board and served on the national reserve study standards task force. Email her at
mbaldry@reserveadvisors.com
Michael Pisarcik, Esq. is a partner with the Pittsburgh law firm Papernick & Gefsky.Michael concentrates his legal practice on real estate issues, with an emphasis on community association matters.He is a member of the CAI Keystone chapter. Contact Michael at:
mpisarcik@papernick-gefsky.com
www.CAIKey sto ne .org 3 5
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