12. What are Reserve Studies?

ANSWER: Reserve studies are visual site inspections conducted by reserve study professionals for the purpose of providing the condo association with an estimate of the nature and cost of any anticipated major maintenance, repair and replacement of limited common elements and common elements.

1. Reserve Studies.
Reserve studies estimate the funds necessary to conduct all property maintenance and repair of all common and limited common elements that will likely require such maintenance and repair within 30 years from the date of the study. Associations are required to prepare (and update annually) reserve studies. If more than 3 years have passed since the last reserve study was prepared, unit owners to which at least 20% of the votes are allocated may demand that a study be obtained by the end of that budget year.

The reserve study is considered supplemental to the condominium’s operating and maintenance budget. A budget ratified by unit owners under the Condominium Act will not be invalidated because of an association’s failure to comply with these rules.

The reserve study must include a reserve component list detailing each component’s useful life, remaining useful life and current repair and replacement cost for each component. The reserve study must also include the following disclosure:

“This reserve study should be reviewed carefully. It may not include all common and limited common element components that will require major maintenance, repair or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a reserve component.”

2. Exception.
Associations do NOT have to prepare and update a reserve study IF doing so would impose an unreasonable hardship, which exists where the cost of preparing a reserve study would exceed 10% of the association’s annual budget.

3. Public Offering Statements and Resale Certificates.
RCW 64.34.410 and RCW 64.34.425 now require that public offering statements and resale certificates include the following disclosure IF the association does NOT have a reserve study:

“This association does not have a current reserve study. The lack of a current reserve study poses certain risks to you, the purchaser. Insufficient reserves may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair or replacement of a common element.”

4. Reserve Accounts.
Associations are encouraged to establish separate reserve accounts, the balance of which should be equal to the amount of cash reserves needed to pay major maintenance, repair or replacement costs (as determined by the reserve study) without the need of special assessment.
An association may withdraw funds from its reserve account to pay for unforeseen or unbudgeted costs. Notice of the withdrawal must be given to each unit owner. A repayment schedule must be adopted within 24 months (unless repayment within 24 months would impose an unreasonable burden on the unit owners).