Title: An act relating to reserve accounts and studies for condominium associations.

Brief Description: Concerning reserve accounts and studies for condominium associations.

Sponsors: Representatives Kelley, McCune, Springer, Williams, Miloscia and Campbell.

Hearing Date: 1/22/08

Staff: Lara Zarowsky (786-7123).

Background:

The Condominium Act governs the management of all residential condominiums built in Washington after July 1, 1990. The Horizontal Property Regimes Act governs those built before July 1, 1990. Neither statute requires condominium associations (associations) to maintain particular levels of funding to pay for repairs or replacement of common elements.

Associations must prepare an annual financial statement, using standard accounting procedures, which may include cost projections for future costs related to common elements. Associations have the authority to adopt and amend annual budgets, and to impose assessments on unit owners. Governing documents may include a provision requiring the association to maintain adequate reserves. Condominium resale certificates must contain a statement of the amount of any reserves for repair and replacement and the portion of those reserves currently designated for any specific project.

A reserve account consists of funds contributed by condominium owners, supplemental to the condominium association's annual operating budget, which are used to fund major maintenance, repair, and replacement of common elements that will be required in the next 20 to 30 years. Examples of common elements include a condominium's lobby, roof, parking lot, recreational areas, roads and sidewalks. The purpose of the reserve account is to offset the financial burden of necessary future renovations that, in the absence of a reserve account, would require the owners to incur a substantial special assessment.

A reserve study identifies the major maintenance, repair, and replacement expenses that an association will incur over time that are not practical to include in an annual budget. The purpose of a reserve study is not to inspect for defects, but to evaluate the expected cost of future repair and maintenance of common elements

A reserve study is performed by a reserve study professional, an independent person suitably qualified by knowledge, skill, experience, training or education to prepare a reserve study.

A reserve disclosure is a statement on a unit's resale certificate or public offering statement indicating that the association lacks a reserve study and that may pose certain risks to the purchaser.

Summary of Bill:

Authorizes and requires condominium associations to conduct an initial reserve study by a reserve study professional, updated annually with a visual site inspection every three years, unless doing so would impose an unreasonable hardship.

Requires a reserve study to include:

• a reserve component list;
• the date of the study;
• the level of study performed;
• the balance of the association's reserve account balance;
• the percentage of the fully funded balance that the reserve account is funded;
• special assessments already implemented or planned;
• interest and inflation assumptions;
• current and recommended reserve account contribution rates; and
• the projected reserve account balance for a minimum of 20 years, and a funding plan to pay for projected expenses without reliance on future unplanned special assessments.

Authorizes and encourages condominium associations to establish reserve accounts independent of the association's annual operating budget, administered by the board of directors, to fund the maintenance, repair and replacement of common elements.

Bars the award of monetary damages or any other liability against the association, the officers, or board of directors, or those who may have provided advice or assistance to the association for failure to: (1) establish a reserve account, (2) have a reserve study prepared or updated, or (3) make reserve disclosures.

Requires a copy of the current reserve study, or disclosure if the association does not have a reserve study, to be included the public offering statement or resale certificate.

Defines: contribution rate; fully funded balance; replacement expense; reserve component; reserve study professional; and useful life.

Appropriation: None.

Fiscal Note: Not requested.

Effective Date: The bill takes effect 90 days after adjournment of session in which bill is passed.