Planning for the Future: HOA Reserve Studies in California

By Devin Langley, CCAM-PM.ND.CI

As we all know, the one constant in life is change. This is especially true in the Common Interest Development (CID) industry, where we see continuous updates to election laws, electronic meeting protocols, disclosure requirements and how about that Corporate Transparency Act. However, one area that has remained relatively unchanged is the preparation and implementation of reserve studies—until recently.

OUR HOAS AGE, SO DO THE COMMUNITIES AROUND THEM. LEPTIEN REPORTS AN INCREASING USE OF RESERVE STUDIES IN MUNICIPALITIES, RESORTS, COUNTRY CLUBS AND WORSHIP FACILITIES, AS THESE ENTITIES RECOGNIZE THE VALUE IN UNDERSTANDING THE LONG-TERM BUDGET IMPACT OF MAINTAINING THEIR FACILITIES.

HOW RESERVES HAVE BEEN AFFECTED

Tragic events like the balcony collapse, in Berkeley, California, and the Surfside Condominium collapse have highlighted the dangers of deferred maintenance and the need for thorough inspections of building components. In response, recent legislative changes now require that all external elevated surfaces be inspected by a licensed architect or engineer. This ensures a more comprehensive assessment of a community’s infrastructure, capturing details that might be missed in a standard reserve study visual inspection.

These inspection reports should be provided to your reserve study preparer for inclusion in the study. Ryan C.K. Leptien, a Reserve Study Analyst with The Helsing Group Inc., ACMC, emphasizes the importance of sharing not only balcony inspection reports but also reports from outside consultants, project engineers or subject matter experts. This contributes to the thoroughness and accuracy of the reserve study.

Leptien also highlights the importance of considering long-life components—those with a lifespan greater than 30 years—in the study. For example, electrical panels, wiring, copper pipes and cast-iron pipes all have an estimated useful life exceeding 30 years. Associations will likely incur expenses in these areas, which they may not have adequately funded. Even if the board chooses not to incorporate these long-life items into the study, it is best practice to note them as unfunded to ensure they remain visible to the board.

HOW AGING COMMUNITIES ARE MANAGING LONG-TERM COSTS

As our HOAs age, so do the communities around them. Leptien reports an increasing use of reserve studies in municipalities, resorts, country clubs and worship facilities, as these entities recognize the value in understanding the long-term budget impact of maintaining their facilities.

This long-term financial focus is crucial as inflationary pressures continue to affect both reserves and operating budgets. Increased minimum wages have forced contracted vendors to increase their prices, fuel surcharges have been implemented and exponential increases in insurance premiums have forced many communities to underfund reserves, defer reserve transfer payments or borrow from reserves to meet operational cash flow needs.

WHAT’S NEXT?

Ultimately, the future of HOA reserve studies in California is evolving to meet the demands of aging infrastructure and increased legislative requirements. By incorporating comprehensive inspections and considering long-life components, associations can better prepare for future expenses and ensure the financial health of their communities. As industry professionals, it is our responsibility to guide boards in fulfilling their fiduciary duties, making informed decisions and planning for the long-term sustainability of their associations. The days of the boards of directors casually reviewing the reserve study and setting arbitrary reserve contributions to avoid raising assessments are behind us.

Devin Langley, CCAM-PM.ND.CI, is the Vice President of Community Management at The Management Trust – Central California with over 18 years of experience.