Capital Reserves
 
Capital Reserves Study

The Property Owners’ Association Act (§55-514.1 et seq.) requires that Homeowners’ Associations conduct a reserve study to determine the necessity and amount of reserves required to repair, replace and restore the capital components. These provisions went into effect on July 1, 2002.

Code of Virginia
Title 55. Property and Conveyances
Chapter 26. Property Owners' Association Act
§ 55-514.1. Reserves for capital components

A. Except to the extent otherwise provided in the declaration and unless the declaration imposes more stringent requirements, the board of directors shall:
     1. Conduct at least once every five years a study to determine the necessity and amount of reserves required to repair, replace and restore the capital 
         components;
     2. Review the results of that study at least annually to determine if reserves are sufficient; and
     3. Make any adjustments the board of directors deems necessary to maintain reserves, as appropriate.
B. To the extent that the reserve study conducted in accordance with this section indicates a need to budget for reserves, the association budget shall include, 
     without limitation:
     1. The current estimated replacement cost, estimated remaining life and estimated useful life of the capital components;
     2. As of the beginning of the fiscal year for which the budget is prepared, the current amount of accumulated cash reserves set aside, to repair, replace or 
         restore capital components and the amount of the expected contribution to the reserve fund for that year; and
     3. A general statement describing the procedures used for the estimation and accumulation of cash reserves pursuant to this section and the extent to which
         the association is funding its reserve obligations consistent with the study currently in effect.
2002, c. 459.

The reserve study is restricted to components of the Association property which are to be replaced by the Association according to its Declarations.  This is usually just common elements (such as streets, community buildings and recreational facilities), but it can include portions of limited common elements or units if the documents so specify.

A reserve study typically consists of three parts:
 
  • Components.  The estimated replacement cost, estimated remaining life, and estimated useful life of each capital component or item, whether or not a part of the common elements, for which the association has the obligation for repair, replacement or restoration and for which the board of directors determines funding is necessary.
  • Funding.  The current amount of accumulated cash reserves set aside to repair, replace or restore the capital components and the amount of the expected contribution to the reserve fund for each fiscal year.
  • Procedures.  A general statement describing the procedures used for the estimation and accumulation of cash reserves and the extent to which the association is funding its reserve obligations consistent with the study currently in effect.
Resale disclosure laws require that the study or a summary be furnished to each prospective buyer with each and every resale certificate. Failure to prepare a reserve study or properly fund it could result in mortgages being denied for home sales and potential liability for Boards of Directors.
 
The 2017 Stonehenge HOA Study can be found here: 2017 Stonehenge HOA Reserve Study


 

  


 

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