January 2025 CT

What are the results of not following your reserve study? By Brian Weaver, PCAM, Association Reserves

Is this reserve study itself law? Do I need to follow your reserve study?

$0. Lastly, you are not required to do the projects in the years the reserve study estimates. You are well within your rights to push a roof project back a year or two because it is lasting longer than projected. That said, you are required to have adequate funds to do the projects in the years they are estimated in your reserve study. Over the last year, a lot of information (and misinformation) has circulated through out NJ regarding reserve studies. As with any new law, the ramifications of it often reveal other underlying issues requiring clarification and/or reinterpretation. While it may take some time to sort through the challenges presented by the new legislation, we are presently aware of potential risks and problems if an association chooses to ignore a reserve study that is well crafted and meets both CAI’s Reserve Study Standards and NJ legislation. Externally, these potential risks and problems may be imposed by or result from the State of New Jersey, an association’s insurance carrier, home mortgage lenders, and community association lenders. Internally, these risks and problems include board member liability, the lack of a master plan, and ongoing deterioration of the building components which can result in catastrophic events like balcony, parking garage, and build ing collapses. To best understand the problems that may result from not following the reserve study, it is very important to understand what a reserve study is and the “why” behind it. When I started in this business almost 20 years ago,

Do I need to follow your recommended funding plan? Do I need to do these reserve projects when you tell us? T hese and similar questions are being asked repeat edly by board members and managers throughout the state of New Jersey as they wrestle through the challenges of the new reserve study legislation, otherwise known as NJ S2760. This legislation has clear language and criteria regarding reserve studies, but the reserve study itself is not the law. The legislation, NJ S2760, is the law. It is important that the reserve study you receive complies with the law, with CAI’s Reserve Study Standards, and provides you with the funding plan options permitted by the law. There are a variety of funding plans offered by reserve study providers. Your job, as the client, is to collaborate with your provider to ensure that your plan complies and is best for the finan cial health of the association. For example, some reserve study providers will not recommend a baseline funding plan which potentially brings your projected reserve balance close to $0. It is well within your right as a community to choose to follow this funding plan. The legislation states that your funding plan must be “adequate”, a term used to describe a plan that keeps your 30-year projection above

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JANUARY 2025