Reserve Study Timeline

Where are We at With the Reserve Study?

You are well into the new year, and all of a sudden you think to yourself, is it time to get started on our Reserve Study? Level I, Level II, Level III? When was the last site inspection? Why do we need to have a financial update? Does this include all the disclosures, Laird form, what-ever-the-heck-it-is-called form??? Once a reserve study proposal has been approved, you need to understand reserve timelines.

Starting at the Beginning…

Your Reserve Study preparer has been selected from a slate of qualified candidates and now it’s time to begin.  The preparer will likely ask you for the following information: reserve allocation, reserve balance, monthly assessments (this may have to be provided at a later date, after the budget has been approved), and component information, all of which will shape the report.  There may be some conversation regarding how to fund for future reserve expenditures as well as the development of the funding plan; straight-line, for example, or a cashflow method such as baseline or threshold.

We will need the same information regardless if we are preparing an on-site or financial update report.  You should allow an extra month for an on-site reserve study.  Once the

preparer has all this information, a draft or final report can be issued.  Allow at least 30 days to review and digest this information.  The Board and Management can use this information for next year’s budget and to identify a funding plan.

Let’s start with the most common, a calendar year association with a fiscal year January 1 through December 31.  The California Civil Code states that you must mail out all of your disclosure documents 30 to 90 days prior to the end of the fiscal year.  This means having the copying done and the disclosures deposited in the mail between October 3 and December 2 (not counting whether or not the dates land on a weekend).  You care about ALL of your disclosure documents: collections, insurance, operating budget, etc. The reserve study is just one piece to the puzzle.

Civil Code Compliance

And what is it, exactly, that you need from your reserve study?  Typically, two pieces are required; the Executive Summary (a.k.a. Homeowners Summary) and the Assessment & Reserve Funding Disclosure Summary (a.k.a. Laird Form–for those of you who remember what that is!).  A third, optional page that is sometimes included, is the “Reserve Budget”.

A little known fact: the Assessment & Reserve Funding Disclosure Summary can be prepared by anyone that is willing to fill out the form.  Attorneys, Board members, Community Managers, and of course us, the Reserve Professionals!  However, other than us, most folks would not want the liability associated with answering those six little questions.

We had an on-site inspection performed last year, do we need another this year?

California Civil Code 5550 states that every three years an on-site visual inspection of the accessible common area elements the association is responsible to maintain must be performed.

So if you have a Level 1 or Level 2 Reserve Study done for fiscal year 2016, you will not need another on-site inspection, likely a Level 2, until fiscal year 2019.

Level 2? YES, most likely you will need a Level 2, not a Level 1. A Level 1 Reserve Study involves counting and measuring all common area the association is required to repair, replace, restore, or maintain. That said, once an association is confident with its component quantities, an on-site condition assessment is all that’s needed. And Level 2’s are cheaper than Level 1’s. Who doesn’t love that!

What about Financial Updates?

The Civil Code states an on-site reserve study must be performed every 3 years, but what about the years in between? While Level 3, financial update reserve studies are not required, they are strongly encouraged for common-interest developments. Disclosure forms can only be updated by conducting a reserve study. So, one may argue that not much has changed in an association, you don’t want to give potential homeowners old, outdated disclosure documents. Financial updates are very inexpensive compared to on-site inspections, for the purpose of encouraging associations to keep their components updated and to provide fresh financial and disclosure documents.

Being Proactive

While it may seem like the perfect time of year to get your calendar year-end reserve study done in August or September, it will be wise to keep in mind that most Community Association’s have the same December 31 year-end. Being proactive with your reserve study will help everyone involved! Thinking April or May is too soon? We welcome communities to share their plans and anticipated expenses with us as early in the year as possible. Then, when August or September rolls around, we can update the reserve study with a few tweaks and send it off to the Board and Management.

The Rare Occasion…

But wait, what if you send your Reserve Study provider the authorization early in the year, like February 2017 or April 2017?  Do you want the Reserve Study to have a study date of January 2017 or January 2018?  It is standard practice to coincide the study date with the Association’s calendar or fiscal year.  It rarely makes sense to have a reserve study conducted for the year you are all ready in.  The Board says they had not done one the previous year for any number of reasons and that is why they need to do it now.  You can do that, however, all your disclosures will be valid for less than a year.  Not much value in that!  We then come back to you with a proposal in a couple more months after the report for the previous year is completed to see if you want to update the report.  You say, “But we just did it!”  And you did, but your disclosures will be out of date for the upcoming year.

The same timelines hold true for fiscal mid-year associations. The following spreadsheet may help in establishing your own timelines.

Reserve Study Timeline

Fiscal Year January 1 – December 31 February 1 – January 31 March 1 – February 28 April 1 – March 31 May 1 – April 30 June 1 – May 31
Obtain/Select Proposal May – July June – August July – September August – October September – November October – December
Draft/Final Report Due August – September September – October October – November November – December December – January January – February
Mail Disclosures Oct 3 – Dec 2 Nov 1 – Jan 1 Dec 2 – Jan 30 Jan 1 – Mar 2 Jan 31 – Apr 1 Mar 3 – May 2
Fiscal Year July 1 – June 30 August 1 – July 31 September 1 – August 31 October 1 – September 30 November 1 – October 31 December 1 – November 30
Obtain/Select Proposal November – January December – February January – March February – April March – May April – June
Draft/Final Report Due February – March March – April April – May June – July July – August August – September
Mail Disclosures Apr 2 – June 1 May 3 – July 2 June 3 – Aug 2 July 3 – Sept 1 Aug 3 – Oct 2 Sept 2 – Nov 1

Mail Disclosure dates are subject to variances due to holidays and weekends.