What’s Unique about California Reserve Studies?

  What’s Unique about California Reserve Studies?

A Reserve Study is the written report that assesses the common area of an association. It offers advice on how much the association should be putting aside every month to meet any future financial obligations without the need for a special assessment. Reserve funds are typically used to pay for roofs, parking lot resurfacing and exterior painting projects as well as unforeseen emergency expenses.

Features of a California Reserve Study

The California Civil Code regulates the minimum requirements for the study. Since it’s a part of the budgeting procedure, the association’s board of directors and property manager will work hand in hand with a professional reserve studies company to put together their reserve study.

The California Reserve Study disclosure stipulations are unique, and they are different from those in other states. The stipulations are introduced in the Davis-Stirling Common Interest Development Act, Civil Code Section 1365. The Code proposes specific stipulations for board members to follow, and they are obligated to have a site examination every three years. Also see 2012 updates to Davis-Stirling on our blog.

Common Uses for the Reserve Study

Reserve studies are created to meet the sanctioned requirements and also act as a plan for maintenance; an invaluable tool when it comes to budget preparation. Another feature of a reserve study is the comparison exhibit – it saves a considerable amount of time, by showing the differences in the current report as opposed to the prior one. It’s a great way to help users comprehend and critique what has changed since the previous report was distributed.

The property disclosure form is created to coincide with the yearly budget package, and failure to do so in a timely manner could restrict the association’s power to increase the assessments. Community sales, and the lenders involved with them, also depend on legal disclosures.

Another goal of the study is to make it a functional tool in the financial management of the association, rather than to just fulfill the regulated obligation. For a client to get the full benefits of the reserve study, questions about planned future expenditures should be asked and incorporated into the study.

Ordinary industry practices dictate that homeowners associations should carry out routine reserve studies as a judicial business practice. The directors of an association are typically held to a “prudent” standard for whether they have met the financial obligations of the position they hold.

Read More: California Reserve Fund Law

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