What you need to know about reserve fund study

A reserve study assesses all significant assets that an HOA or condominium is responsible for maintaining. It includes an analysis and inspection of all the community's common elements such as roofs, fencing, mechanicals, concrete, and much more. According to the Condominium Act (1998), all existing and new condominium corporations should have a Reserve Fund. This article highlights some of the critical aspects of a reserve fund study.

1.       What is the purpose of a Reserve Fund Study?

A reserve fund study ensures that the condo reserve fund is well-financed to make significant repairs or replace the Condominium corporations' common elements or assets. It is used to evaluate how much life the assets have left and how much it is likely to cost when they wear out. Having a reserve study fund mitigates the need for a special assessment. 

2.       When should a Reserve Fund Study be done?

A study is valid for one year. However, depending on the community's assets, the study should be updated every three to five years. 

3.       Who is allowed to prepare a Reserve Fund Study?

Engineers or architects are qualified to prepare a Reserve Fund Study.

4.       What should be in the Reserve Fund Study?

The study consists of two sections:

The Physical Analysis 

·         This section reviews the condition and life expectancy of the assets or components. 

·         Comments on the site conditions that may affect the life expectancy

·         Estimates the remaining life the assets have left or need for major repairs

The Financial Analysis

·         Estimates costs for major repairs and replacements

·         An appropriate recommendation of how much money should be put into the condo reserve fund and how to adequately fund it. 

·         Provides a projection of when major repairs or replacements will be necessary.

5.       What should a Condominium Corporation provide for the study to be conducted?

·         A list of all the repairs and replacements that have been carried out and when they were done

·         Summary of all the issues that have been experienced

·         Accurate drawings of the buildings

·         Declaration and description

·         Financial statements and any cost-sharing agreements

·         Documentation of previous studies if there are any

·         Details of the current contribution to the Reserve Fund

6.       What are the types of Reserve Fund Studies?

Reserve studies can be grouped into four categories:

·         Full Study: This is the most comprehensive study carried out of the property. It includes component inventory, conditions assessment based upon on-site observation, life, and valuation estimates of components, and a determination of the reserve funding plan and reserve fund status. 

·         Update With Site Visit: As the name implies, it is an updated study of the comprehensive study. A site visit is necessary to carry out an updated study.

·         Update With No Site Visit: A site visit is not necessary for this kind of study to be undertaken. It involves updating financial information based on the information provided by the corporation or HOA board.

·         Preliminary: This is a study prepared before construction that is used for budget estimates. It is based on the architectural and engineering plans.