Reserve Studies in Washington DC
By Nicholas D Cowie, Washington DC Condominium Lawyer
The purpose of reserve studies in Washington DC 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 components for which a condominium association is responsible to repair or replace, such as roofs, exterior walls, common area mechanical equipment, such as elevators and HVAC equipment, sidewalks, parking areas, 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 or HOA should allocate to its reserve account each year so that the necessary funds will be available for future repairs and replacement. This type of planning avoids a one-time, huge surprise assessment for major repair/replacement projects.
District of Columbia Reserve Study Laws
The DC Condominium Act contains no statutory requirement for condominium associations to conduct reserve studies in Washington DC, nor does it contain a mandate that condominium Association’s fund reserve accounts for future replacement and repair. However, as a matter of good governance, a condominium unit owners’ association (“condominium association”) in the District of Columbia should obtain and independent reserve study following the transfer of control over the association from the declarant to the resident unit owners to ensure that the declarant’s budget is accurate, and then perform updated reserve studies on a fairly regular basis as necessary to keep up with cost of living and the physical conditions of common element facilities overtime which can be affected by factors, such as weather and maintenance, etc. Failure to conduct regular reserve studies and adjust budgets accordingly could be viewed as a breach of the Board of Director’s fiduciary duty under the DC condominium act in the laws of the District of Columbia.
A District of Columbia condominium association has the “[p]ower to adopt and amend a budget for revenues, expenditures, and reserves, and collect assessments for common expenses [including reserves] from unit owners.” DC Code § 42–1903.08(a)(2). See D.C. Code § 42–1901.02(2) (“ ‘Common expenses’ [include] the creation and maintenance of reserves pursuant to the provisions of the condominium instruments.”). In that the associations have the power to collect assessments to fund reserve accounts accounts, by implication they also have the power to conduct reserve studies in Washington DC to form the basis of budgeting for the reserve fund.
The DC condominium act also contains numerous disclosure requirements relative to reserve funding. The public offering statement created by the declarant and provided to wall purchasers who take title from the declarant must “[a] statement of the amount, or a statement that there is no amount, included in the projected budget as a reserve for repairs and replacement.” D.C. Code § 42–1904.04(a)(5)(D). If the condominium is a conversion condominium (an older building renovated and converted into a condominium for sale to the public), declarant “shall assure that the budget established for the [condominium] unit owners’ association and upon which common expense assessments are made shall include an adequate provision for reasonable reserves to cover future maintenance, repair, or replacement costs associated with the common elements.” DC Code § 42–1904.08(c). Finally, in the event of a resale of a condominium unit by a unit owner other than a declarant, the condominium association is required to provide for delivery to the purchaser by the selling unit, owner, “[a] statement of the status and amount of any reserves for capital expenditures, contingencies, and improvements, and any portion of such reserves earmarked for any specified project by the executive board. DC Code § 42–1903.08(a)(2)
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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 in Washington, D.C. 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.