Recently, a new law went into effect that requires separation between Traditional and Structural Reserves. Therefore, it is good business practice to split your existing reserves either internally or physically in order to maintain the proper balances on each. Statute states that an Association cannot comingle traditional and structural reserves.
The Structural Integrity Reserve Study examines the reserve funds required for future major repairs and/or replacement of the common area structural components based on visual examination.
A condominium association must have a structural integrity reserve study completed at least every 10 years after the condominium’s creation for each building on the condominium property that is three stories or higher in height which includes, at a minimum, a study of the following items:
– Roof
– Load-bearing walls or other primary structural members
– Fireproofing and fire protection systems
- Plumbing
– Electrical systems
– Waterproofing and exterior painting
– Windows & Doors (common areas)
Any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000 and the failure to replace or maintain such item negatively affects the items listed above, as determined by the Professional Reserve Analyst, Reserve Specialist, engineer, or architect performing the visual inspection.
A traditional reserve study is a financial planning tool used by condominiums, homeowner associations, and other organizations to anticipate and budget for the repair and replacement of common property elements. This is particularly important for shared communities where there are common areas, buildings, and infrastructure that need ongoing maintenance.
In Associations that require a Structural Integrity Reserve Study, a Traditional Reserve Study will address the remaining items the Association is responsible for maintaining and replacing. For example: pavement/ asphalt, pool & equipment, elevators, generators, etc. These items can be quite expensive. In maintaining the goal of less frequent special assessments, a Traditional Reserve Study bridges the missing information a Board needs to formulate its budget.
The rationale behind separating Traditional and Structural Reserves lies in their distinct purposes and utilization. Traditional Reserves typically encompass funds allocated for routine maintenance, repairs, and replacements of common elements within the community, such as landscaping or painting. On the other hand, Structural Reserves are designated for more significant capital expenditures, including the repair or replacement of major components like roofs, elevators, or parking structures.
Maintaining a clear distinction between these reserves ensures that adequate funding is available for both ongoing maintenance needs and unforeseen structural repairs or replacements. By segregating the reserves, associations can better track and allocate funds based on the specific requirements of each category, thus safeguarding against financial mismanagement or shortfall in critical areas.
By separating Traditional and Structural Reserves, your community can stay on top of repairs and maintenance without breaking the bank. Remember this about Reserve Funds: it’s all about keeping things in check for the long haul.
