We Have Minimal Assets: Do We Need a Reserve Study? Karen McDonald
In 2008, a new law was enacted which required residential condominium associations within the state of Washington to perform and disclose reserve studies. The year 2011 saw the additional requirement of homeowners associations, with both condominium and homeowners associations further defined as those with “significant assets”. The law applies to all three statutes which govern community associations in our state; RCW 64.34 (condominiums created after July 1, 1990), RCW 64.32 (condominiums created before July 1, 1990) and 64.38 (homeowners associations). In general, reserve studies are beneficial to the long term financial success of all community associations, however smaller associations with minimal assets often find themselves asking “Do we really need to do a reserve study?” While there are other clauses within the statute that may require a reserve study or allow the issue of significant assets.
homeowners associations. Under the RCW 64.38, “significant assets” means that the current replacement value of the major reserve components is seventy-five percent or more association’s reserve account funds [sic]. In a practical sense, this translates to needing to determine the cost to replace all common association elements that meet the criteria for reserve funding, if they were all to occur in the same year. As budget of $50,000 with $3,000 of that income budgeted to the $35,250 threshold. When determining this threshold, it is important the association consider all assets it is responsible for. Carefully review your governing documents to determine the common area responsibility; this information is most commonly found in the Declaration and on the Plat Map. Sometimes, a common area may have been assigned to the local municipality (such as a stormwater pond), therefore it is important that the association confirm this information. Common assets within homeowners associations include private asphalt tracts, stormwater ponds (and associated fencing), monument signs and play structures. Many of thought; a basic medium sized commercial quality play
18 Community Associations Journal | March 2018
structure can easily run $25,000 or more. Therefore, when determining whether your association has significant assets, it is important that the association research the replacement cost of the assets prior to making a determination. If the association determines that it does not have assets which small associations however, the presence of private asphalt and/or a playground are significant enough to trigger the reserve study requirement.
operating budget, not including reserve contributions. This applies to condominiums governed by both RCW 64.32 and RCW 64.34. Therefore, a small condominium association with an annual budget of $50,000 and $5,000 going to reserves would have a threshold of $45,000, meaning the cost of major maintenance, repairs and replacement of the assets assets within condominium associations include private asphalt, site lighting (parking lot pole lights), stormwater windows, decks, etc.). As with homeowners associations, it is important that the association carefully review its governing documents to determine which items it is responsible to maintain, repair and replace as some assets may be the responsibility of the local municipality (such as stormwater components (siding, roofs, painting, etc.) will find that they have significant assets. Additionally, because condominiums tend to have a larger number of assets to maintain than homeowners associations, the aggregate cost of a number
Significant assets are just one of the parameters within the statutes that govern reserve studies. There are additional requirements which may allow an association to waive a reserve study, or require one to be performed, therefore it is recommended that your association consult with legal counsel or your reserve study provider if there are any questions about whether your association needs a reserve are any questions about which assets the association is responsible to maintain, repair and replace.
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