Senate Bill 6215, which was passed earlier this year, has gone into effect in Washington State. The legislation, effective as of June 12, 2008, now requires all condominium associations formed after July1, 1990 to prepare a reserve study in accordance with RCW 64.34.244(1) and the governing documents of the association.

The initial reserve study must be based on a visual onsite evaluation of the association’s common components performed by a reserve study professional. Known as a Level 1 reserve study; this type of study is of the most value when the onsite assessment is performed by an independent architect or engineer, although in many cases the assessment will be conducted by the reserve study preparer or members of their staff.

While there are reserve study providers who employ in-house personnel with architectural or engineering credentials; HOA Services Group strongly recommends all associations consider the option of having an independent consultant prepare the condition assessment.  It provides a level of analysis and objectivity which cannot be expected if the architectural consultant and the reserve study professional are one and the same.

The new law also requires the association to update their study every year; although it does not specifically require the update be conducted with the assistance of a professional reserve study provider. Every three years an existing reserve study must be updated with the update being based on a new onsite evaluation performed by a reserve study professional. This type of updated reserve study is known as a Level 2 reserve study.

Highlights of the New Law-

Senate Bill 6215, which took affect on June 12, 2008 after passage on March 8, 2008, will effect Washington condominium owners and prospective buyers in a number of important ways. Among the highlights of the new law are the following;

• All homeowners associations formed after July 1, 1990 are now required to prepare a reserve study which is based on a visual assessment of the common area components. This assessment must be performed by a reserve study professional. The law identifies such a study as a Level 1 reserve study.
• The reserve study must be updated every year, although the law does not require that the update be prepared by a professional reserve study provider.
• All Level 1 reserve studies must be updated every three years by conducting a new visual assessment of the common area components. The assessment must be performed by a reserve study professional. The law identifies this three year update as a Level 2 reserve study.
• Preparation of a new Level 2 reserve study must continue every three years without interruption unless and until such time as the property is no longer classified as a condominium under the Washington Condominium Act.
• If an association fails to prepare a Level 1 reserve study or to complete the annual updates; or to fund the reserve account according to the recommendations of a reserve study professional; as required by RCW 64.34; all sellers of such condominiums must disclose these facts to prospective buyers prior to the sale of any condominium in the state of Washington. The precise language of the required disclosure is dictated in the statute and reads as follows:

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.

• As a prospective buyer you are entitled to a copy the association’s current reserve study prior to the time of purchase. If you are not presented with a disclosure statement exactly as written above, you may rightfully assume the association maintains a current reserve study and funds their reserves according to the recommendations of a reserve study professional. Failure to provide prospective buyers with a copy of the current reserve study or the above disclosure statement is a violation of RCW 64.34.
• If it has been more than three years since an association has had a reserve study prepared by reserve study professional, the owners of twenty percent of the units in the association may demand that the cost of a new reserve study be included in the next annual budget; and a new reserve study must be completed by the end of that budget year. This demand must be made in writing to the board of directors and must refer to RCW 64.34 (4) “Article 3”. If an association fails to prepare a new reserve study after such demand has been made a court may order specific performance and award reasonable attorneys fees to the prevailing parties. The statutory provision allowing a 20% minority to demand this action by the board of directors supersedes any clauses or provisions in the association’s governing documents to the contrary.
• An association may claim an unreasonable hardship exists with respect to the preparation of a professional reserve study only if the cost of a reserve study prepared by a professional provider exceeds ten percent of the association’s annual operating budget. In all other cases every association is required to obtain a reserve study from a professional reserve study provider every three years.
• An association may borrow from its reserve fund to pay for unforeseen expenses. All such transactions must be recorded in the official minute book of the association and all unit owners must be notified in writing that this transaction is going to occur. Notification may be delivered by first-class United States mail or by hand delivering the written notice to each unit owner. A repayment schedule not to exceed twenty four months must be established unless it is determined that such a repayment plan would impose an unreasonable burden on the unit owners.

The law goes on to describe specific content and information which is required to be included in all reserve studies prepared for condominiums in the state of Washington, among other things; and includes a lengthy section of definitions for terms used in the context of the Condominium Act and reserve studies in general.

To summarize this rather dramatic change in Washington law; it is fair to say the state of Washington has moved from the back of the pack to the head of the line as one of only a handful of states which now require condominium associations to maintain a professionally prepared reserve study and to disclose the reserve fund status to all prospective condominium buyers.

Over time this important legislation will have a positive impact on the quality of life of all condominium owners and the element of risk faced by prospective buyers who in the majority of states would not be entitled to the level of disclosure now required in Washington.

HOA Services Group, LLC supports this new legislation and applauds the Washington State legislature with this important consumer protection measure.

For more information about the importance of reserve studies for all homeowner’s associations and prospective buyers [click here]