Maryland / DC Condo & HOA Attorneys
Maryland / DC Condo & HOA Attorneys

RESERVE STUDIES & RESERVE FUNDING IN MARYLAND

Condominium Reserve Studies, in Maryland by Nicholas D Cowie of Cowie Law Group, P.C., Maryland and Washington DC condominium an HOA attorneys

RESERVE STUDIES & RESERVE FUNDING IN MARYLAND

Conducting periodic reserve studies and reserve funding in Maryland is mandated by the Maryland Condominium Act, the Maryland Homeowners Association Act and the Maryland Cooperative Housing Corporation Act. 

The purpose of a reserve study is to determine the amount of annual assessments that should be placed into a reserve account to pay for future repair or replacement of the major condominium components for which the association is responsible, such as roofs, exterior walls, clubhouse, sidewalks, stormwater management facilities, roadways, etc. A normal useful life, or “life expectancy,” is assigned to each of these components (e.g., a 25-year roof), as well as an estimated cost to repair or replace those components at the end of their useful life. Based on these projections, a reserve analyst estimates the amount of money that the condominium association should allocate to its reserve account each year so that the necessary funds will be available for future repairs and replacement. 

A. Mandatory Replacement / Repair Reserve Accounts

As of October 1, 2022, all Maryland condominiums, homeowners associations (HOAs), and cooperative associations (co-ops) must establish and fund reserve accounts (“reserves”) to set aside cash allocated to pay for future required replacements and major repairs of capital components, such as common structural, mechanical, electrical, and plumbing systems, and other common infrastructure the association is obligated to repair or replace. Reserves Studies and funding were previously mandated only in Prince George’s and Montgomery Counties, but the 2022 legislation alters existing requirements for those counties and expands mandatory reserve funding based on the mandatory performance of reserve studies every 5 years for all community associations statewide. Conducting periodic reserve studies and reserve funding in Maryland is now statewide.

The law which created these statewide changes is House Bill No. 107. That Bill amended the following statutes: (1) the Maryland Condominium Act, Sections 11-109, 11-109.2, 11-109.4 and 11-110; (2) the Maryland Homeowners Association Act, Sections 11B-106.1, 11B-112.2, 11B-112.3 and 11B-117; and (3) the Maryland Cooperative Housing Corporation Act, Section 5–6B–26.1. The mandatory timing under these laws for obtaining  reserve studies and funding reserves differs for Prince George’s and Montgomery Counties, as discussed below, because a county wide reserve study/funding law was already in effect in those counties prior to October 1, 2022 when the statewide changes became effective under House Bill No. 107.

B. Mandatory Reserve Studies Every 5 Years

All Maryland condominium, HOA, and co-op associations are required by law to obtain a professional reserve study every 5 years that identifies: (1) the capital components the association is required to repair and replace, (2) the normal and remaining useful life and cost to replace/repair each capital component, and (3) the estimated amount of money the association has allocated and will need to set aside annually to fund the required repair and replacement of capital components. MD Condo Act § 11-109.4(c) and (d); MD HOA Act § 11B-112.3(c) and (d); MD Co-op Act § 5–6B–26.1(b) and (c). 

The laws applicable to Maryland condominiums, HOAs, and co-ops also set forth minimum credentials for professionals who can perform the required reserve studies, mandating that they: (1) be a state-licensed architect or engineer, (2) be professionally designated as a reserve specialist or analyst by one of two trade associations, the Community Associations Institute or the Association of Professional Reserve Analysts; or (3) have prepared at least 30 reserve studies in the past 3 years or participated in preparing at least 30 reserve studies while employed buy a firm that prepares reserve studies. MD Condo Act § 11-109.4(e)(1); MD HOA Act § 11B-112.3(e)(1); MD Co-op Act § 5–6B–26.1(d)(1). 

C. Deadlines to Obtain Reserve Studies Generally 

Maryland law specifies the deadlines for all Maryland condominium, HOA, and co-op associations statewide to obtain the required reserve studies. With the exception of Prince George’s and Montgomery County (discussed below), the deadlines are centered around October 1, 2022 because that’s the date that the law requiring reserve studies became effective.

1. Associations Created Before October 1, 2022

All associations that have not obtained a reserve study since October 1, 2018, must obtain one by October 1, 2023. Associations that have obtained a reserve study since October 1, 2018, must obtain an updated study within 5 years of that last study. All reserve studies must be updated every 5 years thereafter. MD Condo Act § 11-109.4(d)(3); MD HOA Act § 11B-112.3(d)(3); MD Co-op Act § 5–6B–26.1(c)(3). 

2. Associations Created On or After October 1, 2022

Condominium and co-op associations created on or after October 1, 2022 must have an independent reserved study completed no less than 30 days before the date of the transition meeting at which the developer first turns over control of the association to the homeowners by allowing a homeowner majority to be elected to the association’s board (a/k/a “transition meeting”). MD Condo Act § 11-109.4(c)(2); MD Co-op Act § 5–6B–26.1(b)(2). HOAs created on or after October 1, 2022 must have a reserve study completed between 90 and 30 days before the transition meeting. MD HOA Act § 11B-112.3(c)(2).

This means that for all associations created on or after October 1, 2022, the developer-controlled association board will be required to obtain the association’s initial reserve study in advance of the transition meeting to elect a homeowner majority board for the association. As such, the first elected homeowner-controlled board of directors will already have a reserve study in hand upon taking over control at the transition meeting. Additionally and significantly, the replacement reserve funding amount recommended in the initial reserve study obtained by a condominium or HOA developer must be delivered to the homeowner-controlled association within 30 days following the transition meeting. MD Condo Act § 11-109(c)(16)(v); MD HOA Act § 11B-106.1(e).

The new association’s initial reserve study prepared by the developer must be updated every 5 years thereafter. MD Condo Act § 11-109.4(c)(3); MD HOA Act § 11B-112.3(c)(3); MD Co-op Act § 5–6B–26.1(b)(3). 

D. Deadlines to Obtain Reserve Studies in PG & Montgomery County

Prince George’s and Montgomery County associations created before October 1, 2022 will have earlier reserve study deadlines than other counties in Maryland because reserve studies and reserve funding were already mandated in Prince George’s and Montgomery County before the mandate became statewide on October 1, 2022.

1. Prince George’s County

(a) PG County Associations Created Before October 1, 2020:

Prince George’s County Associations were already required to obtain reserve studies by pre-existing county laws that became effective on October 1, 2020. Specifically, all Prince George’s County associations created before October 1, 2020 that had not obtained a reserve study since October 1, 2016, were already required to obtain one by October 1, 2021. Therefore, those Prince George’s county associations that obtained a reserve study since October 1, 2016, are already required to obtain an updated study within 5 years of that last study. Once the reserve study has been obtained under these deadlines, it must thereafter be updated every 5 years. MD Condo Act § 11-109.4(d)(1); MD HOA Act § 11B-112.3(d)(1); MD Co-op Act § 5–6B–26.1(c)(1). 

(b) PG County Associations Created After October 1, 2020:

For all condominiums, HOAs, and co-ops in Prince George’s County created on or after October 1, 2020, the developer-controlled association is already required to obtain a reserve study for the future major repairs and replacements 30 days before the transition meeting, which is required to be updated by the association every five years thereafter. This pre-existing reserve study requirement for new associations in Prince George’s County continues under the statewide reserve study law effective October 1, 2022 as discussed above. MD Condo Act § 11-109.4(c); MD HOA Act § 11B-112.3(c); MD Co-op Act § 5–6B–26.1(b). See, Section C.2 above, “Deadlines to Obtain Reserve Studies Generally” for “Associations Created On or After October 1, 2022.”

Associations Created On or After October 1, 2022

2. Montgomery County

(a) Montgomery County Associations Created Before October 1, 2021:

Montgomery County Associations were already required to obtain reserve studies by pre-existing county laws that became effective on October 1, 2021. Specifically, all Montgomery County associations created before October 1, 2021 that had not obtained a reserve study since October 1, 2017, are already required to obtain one by October 1, 2022; Therefore, those Montgomery County associations that obtained a reserve study since October 1, 2017, are already required to obtain an updated study within 5 years of that last study. Once the reserve study has been obtained under these deadlines, it must thereafter be updated every 5 years under the . MD Condo Act § 11-109.4(d)(2); MD HOA Act § 11B-112.3(d)(2); MD Co-op Act § 5–6B–26.1(c)(2).

(b) Montgomery County Associations Created After October 1, 2021:

Also, for new associations in Montgomery County created on or after October 1, 2021, the developer-controlled association is already required to obtain a reserve study for the future major repairs and replacements 30 days before the transition meeting, which is required to be updated by the association every five years thereafter. This pre-existing reserve study requirement for new associations in Montgomery County continues under the statewide reserve study law effective October 1, 2022 as discussed above. MD Condo Act § 11-109.4(c); MD HOA Act § 11B-112.3(c); MD Co-op Act § 5–6B–26.1(b). See, Section C.2 above, “Deadlines to Obtain Reserve Studies Generally” for “Associations Created On or After October 1, 2022.”

E. Homeowner Access to Reserve studies

The laws requiring reserve studies and reserve funding in Maryland also mandate that copies of all reserve studies obtained by associations under the new laws as discussed above must be made available to all association members. MD Condo Act § 11-109.4(e)(2); MD HOA Act § 11B-112.3(e)(2); MD Co-op Act § 5–6B–26.1(d)(2). 

F. Mandatory Budgeting to Fund Reserves

The laws requiring reserve studies and reserve funding in Maryland specifically require all association boards of directors to fund reserves per the most recent study and take the following actions every year when preparing the association’s annual budget:

  1. The board must review the most recent reserve study in connection with the preparation of the annual proposed budget. MD Condo Act § 11-109.4(e)(3); MD HOA Act § 11B-112.3(e)(3); MD Co-op Act § 5–6B–26.1(d)(3). Co-op boards are also required to review their reserve studies “annually for accuracy.” MD Co-op Act § 5–6B–26.1(f)(1)(i). 
  2. The board must budget to make annual reserve contributions as recommended in the most recent reserve study. MD Condo Act § 11-109.2(c)(1);  MD HOA Act § 11B-112.2(d)(1); MD Co-op Act § 5–6B–26.1(f)(1)(i)
  3. The board has authority to increase assessments levied to cover required reserve funding, regardless of anything in an association’s governing documents that might limit, restrict, or cap assessments, such as requirements for member approval, essentially overriding any existing assessment limitations. MD Condo Act § 11-110(b)(ii);  MD HOA Act § 11B-117(a)(2); MD Co-op Act § 5–6B–26.1(f)(2). Note that if a board intends to borrow money to fund reserves, it must still comply with any governing documents requirements regarding loans.
  4. Associations that obtain an initial reserve study for the first time have 3 fiscal years (budget cycles) to fully fund reserves as recommended in that study. MD Condo Act § 11-109.2(c)(2);  MD HOA Act § 11B-112.2(d)(2); MD Co-op Act § 5–6B–26.1(f)(1)(ii). 
  5. While the new law does not include any specific funding deadline for other, non-initial, reserve studies, it is recommended that all associations fully fund their reserve accounts per the most recent reserve study within 3 fiscal years of the study or sooner.
  6. The board must submit a summary of the most recent reserve study to all homeowners with the proposed annual budget. MD Condo Act § 11-109.4(e)(4); MD HOA Act § 11B-112.3(e)(4); MD Co-op Act § 5–6B–26.1(d)(4). 

G. Reserve Study Exception for Certain HOAs

Certain HOAs with minimum common area facilities are exempt from the laws requiring reserve studies and reserve funding in Maryland. The HOAs that receive this exemption  have a little or no common area facilities they are responsible for maintaining, repairing and replacing. Specifically, the exemption  apply to HOAs that are responsible for maintaining and repairing common areas for which the total initial purchase and installation cost was $10,000 or more. MD HOA Act § 11B-112.3(b)(1)(ii). 

COWIE LAW GROUP - reserve studies and reserve funding in Mary land, by Nicholas D. Cowie of Cowie Law Group, Maryland condominium and HOA attorneys and District of Columbia condominium lawyers

 

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NOTE ON LEGAL ADVICE: This Article should not be relied upon as a legal advice applicable to any specific case concerning condominium reserve studies and reserve funding in Maryland. Rather, it is a general statement of legal principles that may or may not apply to your association and it’s obligations to conduct reserve studies and fund reserves. The individual facts of each case need to be analyzed to determine the application of law. Speak with a Maryland condominium law attorney at Cowie Law Group, P.C. for a consultation relative to your specific situation.

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