New Law Mandates Reserve Study Requirements
In 2021, the Maryland Legislature enacted HB 567/MC 03-21. The legislation imposes new requirements on Montgomery County homeowner associations (HOAs), including our Recreational Association (BPRA). The law mandates that HOAs must conduct reserve studies and that they must fund their recommendations. Reserve Study funds are required to be planned and reserved to address impending and future capital improvement/replacement/maintenance. The law further requires that each reserve study must be conducted by a qualified firm/person(s), and details the required qualifications.
Pursuant to the new law, BPRA must
Fund and complete by October 1, 2022, a new Reserve Study prepared by certified professionals detailing its anticipated future needs
Fund and complete updated Reserve Studies at least every 5 years thereafter (3 years is recommended)
Include and disclose Reserve Study costs and their Findings/Recommendations in its annual budgets distributed to its members
Fully fund and execute the maintenance/replacement recommendations as detailed in its first (and following) Reserve Studies
The statute establishes a “new standard of care that HOA Boards must meet if they expect to prevail in any regulatory or civil action regarding their behavior in planning for proper maintenance or replacement of the facilities/properties for which they are accountable”, according to attorney SCOTTSILVERMAN, a speaker at a Montgomery County Commission on Common Ownership Communities (CCOC) webinar on the new law.
While CCOC webinar panelists estimated initial Reserve Studies to cost $3,000-5,000, BPRA believes that the initial costs to have a reserve study may be considerably higher. The initial Reserve Study is the most comprehensive. Further, there are upwards of 750 HOA’s in Montgomery, all competing for the services of the relatively few firms which conduct such work. Funding for the initial Reserve Study required by the new law will be included in BPRA’s draft FY 2023 Budget that will be included in the Annual Meeting Notice package mailed to all BPRA homeowners in a few weeks.
BPRA Advantage
It should be noted BPRA does enjoy a significant advantage, both in the scope of the Reserve Study and in the needed funds to be set-aside. The 2019 report created by BPRA’s Long-Term Planning Committee (LTPC) identified likely future needs for our common property. On the basis of that report, and Long-Term Planning Committee Chair (now BPRA President) KAREN PURDY’S presentation at the 2019 annual meeting, BPRA members authorized step-increases in the Annual Assessment rate. Those increases were designed to meet the identified needs. So we are already ahead of the curve in preparing for future costs. Hopefully, the firm with which BPRA contracts for its Reserve Study will be able to use and build upon the LTPC’s comprehensive assessment in arriving at its formal conclusions.
A final key message delivered by CCOC webinar panelists is worth repeating here: either no/little reserves, or too much reserves, can impact home sales in a community. Lenders (both refinance and new sales) are becoming more aggressive in looking at HOA reserves when making their lending decisions. And, of course, the condominium’s roof and wall failures in Florida serves as a warning to the effects of no/delayed actions.
By Dave Pullen