The recent change in statutes in Oregon and Washington regarding reserve studies has generated considerable discussion about the purpose, reason for and usefulness of reserve studies.  In Oregon in 2006 the statute requiring 30 year reserve studies was amended to also require a 30 year maintenance plan for the components of each PUD or Condo Association reserve study.  Homeowners, managers, reserve specialists, accountants, attorneys, developers and others spent a considerable amount of time discussing how to provide maintenance plans in order to comply with the law.  In Washington in 2008 the condominium statute was amended to require a reserve study for each association prepared by a reserve study professional and a round of discussions similar to the Oregon experience has been occurring.

The focus of these discussions has been how to comply with the statute amendments and how to define a maintenance plan or a reserve study and a reserve study professional.  All involved have speculated on what the minimum requirements for compliance are and on how to avoid being accused of not complying with the law.  What has been lacking in both states has been a discussion of the real need and purpose of the reserve study and maintenance plan.

The Board of Directors of each condo or PUD association has the fiduciary responsibility to act in the best interests of the community that makes up the association.  The documents of each association give the Board the responsibility of preserving, maintaining and enhancing the common property under the jurisdiction of the association.  A reserve study identifies the components of the common property which need replacement or regular repair, assigns a useful life to each component, assigns a replacement value and calculates an annual contribution to the reserve fund set aside to pay for the repairs and replacements.  The reserve study is the principal tool for the Board to ensure it is fulfilling its fiduciary duty to preserve, maintain and enhance.   Add a maintenance plan for all of the components in the reserve study and the useful life could be lengthened; certainly it will prevent the useful life from being shortened.  

Economics are a key part of the puzzle: money is necessary in the reserve fund to take care of the scheduled replacement and repair of the components.  If the reserve study is done in a timely fashion with accuracy, the needed funds will be identified; if the association regularly assesses its members the amount called for in the reserve study, adequate funds will be available for repairs and replacements.  If a maintenance plan exists and maintenance is performed as scheduled, the useful life of components could be lengthened and the amount assessed annually for components could be reduced.  If an association tries to lower assessments by putting less in the reserve fund than called for, a problem is created when replacements must be made and not enough money is in the fund.  Likewise, if a maintenance plan does not exist or maintenance is not performed as scheduled, a component could deteriorate sooner than planned and adequate money will not exist for the repair or replacement.

Discussions such as those occurring in Oregon and Washington could lead to problems with repair and replacement of common property components.  These discussions divert attention from the key issue of properly preserving, maintaining and enhancing common property.  When associations and their advisors and service providers are more concerned about requirements of statutes, enforcement of the law, and keeping assessments low than they are in how to properly invest in their common property, condos and PUDs will age without a plan for replacement and owners and boards will be faced with diminishing property values and large assessments for replacing worn out components.

Homeowner and Condo Associations must realize that their fiduciary responsibility requires them to talk about proper planning, through reserve studies and maintenance plans, for the preservation of their common property; instead of talking about how to avoid problems with the law and how to keep assessments low

James H. Main, PCAM
President Elect CAI Oregon