Enhancing Community Safety and Financial Planning: New Reserve Study Standards

Enhancing Community Safety and Financial Planning: New Reserve Study Standards

Community Associations play a vital role in managing and maintaining the shared assets of their members. However, ensuring the safety and longevity of these properties requires meticulous planning and budgeting. In response to the tragic incident at Champlain Towers South, the Community Associations Institute (CAI) has taken decisive steps to promote safer and financially sound buildings. CAI’s newly released Reserve Study Standards emphasize the integration of preventive maintenance and structural inspections into reserve studies, equipping community associations with effective budget planning tools.

Incorporating Safety and Financial Prudence

The integration of preventive maintenance and structural inspections into reserve studies marks a significant step forward in ensuring community safety and financial planning. The tragic event at Champlain Towers South underscored the need for proactive measures to avoid potential disasters. CAI’s Condominium Safety Public Policy Report has set the groundwork for these standards, emphasizing the importance of reserve funding and maintenance for all community associations. With consistent application of these standards, communities can confidently invest in their long-term well-being, creating a safer and more secure living environment for residents.

Components Included in the Reserve Study

The components that are selected to be included in the reserve study are based on the following three-part test:

1. 1. The association has the obligation to maintain or replace the existing element.
   2. The need and schedule for this project can be reasonably anticipated.
   3. The total cost for the project is material to the association, can be reasonably estimated, and includes all direct and related costs.

In selecting the components to be included within the reserve study, the following guidelines are provided:

1. 1. Association maintenance/replacement responsibility is generally established by a review of governing documents as well as established association precedent.
   2. When a project becomes “reasonably anticipated” will vary based on building age, construction type, and the judgment of the reserve study provider. This test means that component definitions should be based on some degree of certainty.
   3. The community’s budget should be reviewed, to establish the amount of maintenance planned and which projects are being funded from the operating account.
   4. The amount and types of maintenance occurring at the community.
   5. The community’s historical pattern of expenses, helping to determine which projects in the past have been funded from the operating account, as well as to establish their inclusion within the reserve study.
   6. Any work performed on the reserve components since the prior study was performed.
   7. All available reports and information regarding the physical components within the community.
   8. All maintenance contracts in place for the physical components within the community
   9. Component definitions are not constrained by capital or non-capital state or Internal Revenue Service definitions. If desired at reserve study provider’s discretion, all non-capital (per IRS or other tax authority definitions) items may be categorized separately.
   10. Components are not restricted to physical items. Components may be projects that do not particularly involve the repair or replacement of a physical asset. In many cases, “components” may not be tangible objects or visually observable yet but should still be considered for inclusion in the study based on the expertise of the reserve study provider, a review of any available design drawings, or other subject matter experts.
   11. Professional inspections, evaluations, or related building services qualify as reserve components if they otherwise meet the definition of “component.”
   12. Common area preventive or corrective maintenance projects qualify as reserve components if they otherwise meet the definition of “component.” In other words, a “component” does not need to be a cyclical repair or replacement of a tangible physical item.
   13. A reserve component is not required to be a cyclical replacement. An example may be corrective maintenance required per a periodic structural inspection.
   14. In certain jurisdictions, there may be statutory requirements for or limitations to including components or groups of components in the reserve study. Those statutory requirements are to be respected with this standard, representing the minimum requirements in all cases.
   15. A component replacement is not required to be with a similar component. Logical upgrades to an existing asset or system that is obsolete, inefficient, or no longer effectively serves the needs of the association can be accomplished as a reserve project. These upgrades also can be based on ongoing preventive maintenance costs and an evaluation of energy costs based on higher efficiency equipment.
   16. There is no minimum or maximum limit to useful life or remaining useful life estimates used in a reserve study.
   17. Selection of components, or selection of useful life and remaining useful life, may consider energy usage and ongoing maintenance costs which have an impact on total budgetary expenses and total life cycle costs.
   18. No destructive testing is included in the scope of a reserve study.

The complete Reserve Study Standards provides community associations with a guideline to follow as well as to inform and guide the reserve study provider, such as a Reserve Specialist® (RS), with the minimum requirements necessary for the preparation of a reserve study. By adhering to these guidelines and incorporating preventive measures, community associations can build a solid foundation for a prosperous future. As community associations continue to play an essential role in the lives of millions of homeowners worldwide, ensuring the safety and maintenance of their shared assets remains a crucial endeavor. With the implementation of these new standards, community associations are well-equipped to embrace their responsibilities and create a safer, more sustainable community for all.

Rita Khan is the Digital Marketing Manager at Hirzel Law. Ms. Khan received her Bachelor of Arts in American Culture from the University of Michigan, Master of Business Administration with a focus on Business Intelligence from Baker College, Paralegal Certificate from the University of Michigan Flint – Center for Legal Studies, and Graphic Design Certification from the New York Institute of Art and Design. Ms. Khan has over 15 years of experience in the property management industry from residential real estate, student housing, and condominium & HOA management. Ms. Khan holds several designations and certifications such as Certified Manager of Community Associations (CMCA), Association Management Specialist (AMS) and Professional Community Association Manager (PCAM) from the Community Associations Institute (CAI), Accredited Residential Manager (ARM), Accredited Commercial Manager (ACoM), and Certified Property Manager (CPM) from the Institute of Real Estate Management (IREM), Certified Apartment Manager (CAM), Certified Apartment Portfolio Supervisor (CAPS), and Certified Apartment Supplier (CAS) from the National Apartment Association (NAA), Project Management Professional (PMP) from the Project Management Institute, Certified ScrumMaster (CSM) from Scrum Alliance, Professional Certified Marketer Marketing Management (PCM) from the American Marketing Association and Certified Digital Marketing Professional (CDMP) from the Digital Marketing Institute. She is a licensed Michigan Real Estate Salesperson, Broker and Notary Public. Ms. Khan is also a Real Estate Property Management faculty member at Schoolcraft College where she teaches Introduction to Property Management and Residential and Commercial Property Management. Ms. Khan currently serves as the Chair of the CAI-Michigan Social Media Committee and is an active member of the Institute of Real Estate Management (IREM), where she serves as a member of the IREM Foundation Board of Directors, NextGen Advisory Committee, and a member of the Board of Directors for the IREM Michigan Chapter. Ms. Khan has previously served as a Delegate Member on the CAI Michigan Legislative Action Committee. She may be reached at (248) 986-2290 or rkhan@hirzellaw.com.