Utah Reserve Study Law
In Spring 2010 the Utah legislature passed a law mandating the completion of a reserve study at least every five years for all Utah condominium and homeowners associations reserve fund. The bill was inserted into law as:
Utah Community Association Act
Utah Condominium Ownership Act
Common industry practice is that homeowners associations should perform periodic reserve studies as a prudent business practice. Directors of associations are generally held to a “prudent businessman” rule in determining whether or not they have met the fiduciary duty of their position for the association. A prudent businessman would establish a capital replacement budget (reserve study) to make sure he is generating enough revenues (reserve assessments) to provide for major repairs and replacements.
There is little discussion about whether an association should perform a reserve study. The only significant areas of discussion revolve around how frequently a reserve study should be performed, and if there should be any minimum funding requirements. Most states that have reserve study statutes require physical site inspections on 3 or 5 year cycles. We believe that 5 years is too long. 3 years may be too long if significant reserve expenditures are being made during the subject time period. However, the association should perform an update without site inspection every year as part of the annual budget process.
Chapter 8a Community Association Act
Section 211 (Effective 7/1/14) Reserve Analysis - Reserve Fund
57-8a-211 (Effective 07/01/14) - Reserve analysis - Reserve fund.
(1) As used in this section:
(a) "Reserve analysis" means an analysis to determine:
(i) the need for a reserve fund to accumulate money to cover the cost of repairing, replacing, or restoring common areas that have a useful life of three years or more and a remaining useful life of less than 30 years, if the cost cannot reasonably be funded from the association's general budget or from other association funds; and
(ii) the appropriate amount of any reserve fund.
(b) "Reserve fund line item" means the line item in an association's annual budget that identifies the amount to be placed into a reserve fund.
(2) Except as otherwise provided in the governing documents, a board shall:
(a) cause a reserve analysis to be conducted no less frequently than every six years; and
(b) review and, if necessary, update a previously conducted reserve analysis no less frequently than every three years.
(3) The board may conduct a reserve analysis itself or may engage a reliable person or organization, as determined by the board, to conduct the reserve analysis.
(4) A reserve fund analysis shall include:
(a) a list of the components identified in the reserve analysis that will reasonably require reserve funds;
(b) a statement of the probable remaining useful life, as of the date of the reserve analysis, of each component identified in the reserve analysis;
(c) an estimate of the cost to repair, replace, or restore each component identified in the reserve analysis;
(d) an estimate of the total annual contribution to a reserve fund necessary to meet the cost to repair, replace, or restore each component identified in the reserve analysis during the component's useful life and at the end of the component's useful life; and
(e) a reserve funding plan that recommends how the association may fund the annual contribution described in Subsection (4)(d).
(5) An association shall:
(a) annually provide lot owners a summary of the most recent reserve analysis or update; and
(b) provide a copy of the complete reserve analysis or update to a lot owner who requests a copy.
(6) In formulating its budget each year, an association shall include a reserve fund line item in:
(a) an amount the board determines, based on the reserve analysis, to be prudent; or
(b) an amount required by the governing documents, if the governing documents require an amount higher than the amount determined under Subsection (6)(a).
(7) (a) Within 45 days after the day on which an association adopts its annual budget, the lot owners may veto the reserve fund line item by a 51% vote of the allocated voting interests in the association at a special meeting called by the lot owners for the purpose of voting whether to veto a reserve fund line item.
(b) If the lot owners veto a reserve fund line item under Subsection (7)(a) and a reserve fund line item exists in a previously approved annual budget of the association that was not vetoed, the association shall fund the reserve account in accordance with that prior reserve fund line item.
(8) (a) Subject to Subsection (8)(b), if an association does not comply with the requirements described in Subsection (5), (6), or (7) and fails to remedy the noncompliance within the time specified in Subsection (8)(c), a lot owner may file an action in state court for:
(i) injunctive relief requiring the association to comply with the requirements of Subsection (5), (6), or (7);
(ii) $500 or the lot owner's actual damages, whichever is greater;
(iii) any other remedy provided by law; and
(iv) reasonable costs and attorney fees.
(b) No fewer than 90 days before the day on which a lot owner files a complaint under Subsection (8)(a), the lot owner shall deliver written notice described in Subsection (8)(c) to the association.
(c) A notice under Subsection (8)(b) shall state:
(i) the requirement in Subsection (5), (6), or (7) with which the association has failed to comply;
(ii) a demand that the association come into compliance with the requirements; and
(iii) a date, no fewer than 90 days after the day on which the lot owner delivers the notice, by which the association shall remedy its noncompliance.
(d) In a case filed under Subsection (8)(a), a court may order an association to produce the summary of the reserve analysis or the complete reserve analysis on an expedited basis and at the association's expense.
(9) (a) A board may not use money in a reserve fund:
(i) for daily maintenance expenses, unless a majority of association members vote to approve the use of reserve fund money for that purpose; or
(ii) for any purpose other than the purpose for which the reserve fund was established.
(b) A board shall maintain a reserve fund separate from other association funds.
(c) This Subsection (9) may not be construed to limit a board from prudently investing money in a reserve fund, subject to any investment constraints imposed by the governing documents.
(10) Subsections (2) through (9) do not apply to an association during the period of administrative control.
(11) This section applies to each association, regardless of when the association was created.
Amended by Chapter 152, 2013 General Session
Amended by Chapter 419, 2013 General Session
Title 57 Real Estate
Chapter 8 Condominium Ownership Act
Section 7.5 (Effective 07/01/14) Reserve analysis -- Reserve fund
57-8-7.5 (Effective 07/01/14). Reserve analysis -- Reserve fund.
(1) As used in this section:
(a) "Reserve analysis" means an analysis to determine:
(i) the need for a reserve fund to accumulate money to cover the cost of repairing, replacing, or restoring common areas and facilities that have a useful life of three years or more and a remaining useful life of less than 30 years, if the cost cannot reasonably be funded from the general budget or other funds of the association of unit owners; and
(ii) the appropriate amount of any reserve fund.
(b) "Reserve fund line item" means the line item in an association of unit owners' annual budget that identifies the amount to be placed into a reserve fund.
(2) Except as otherwise provided in the declaration, a management committee shall:
(a) cause a reserve analysis to be conducted no less frequently than every six years; and
(b) review and, if necessary, update a previously conducted reserve analysis no less frequently than every three years.
(3) The management committee may conduct a reserve analysis itself or may engage a reliable person or organization, as determined by the management committee, to conduct the reserve analysis.
(4) A reserve fund analysis shall include:
(a) a list of the components identified in the reserve analysis that will reasonably require reserve funds;
(b) a statement of the probable remaining useful life, as of the date of the reserve analysis, of each component identified in the reserve analysis;
(c) an estimate of the cost to repair, replace, or restore each component identified in the reserve analysis;
(d) an estimate of the total annual contribution to a reserve fund necessary to meet the cost to repair, replace, or restore each component identified in the reserve analysis during the component's useful life and at the end of the component's useful life; and
(e) a reserve funding plan that recommends how the association of unit owners may fund the annual contribution described in Subsection (4)(d).
(5) An association of unit owners shall:
(a) annually provide unit owners a summary of the most recent reserve analysis or update; and
(b) provide a copy of the complete reserve analysis or update to a unit owner who requests a copy.
(6) In formulating its budget each year, an association of unit owners shall include a reserve fund line item in:
(a) an amount the management committee determines, based on the reserve analysis, to be prudent; or
(b) an amount required by the declaration, if the declaration requires an amount higher than the amount determined under Subsection (6)(a).
(7) (a) Within 45 days after the day on which an association of unit owners adopts its annual budget, the unit owners may veto the reserve fund line item by a 51% vote of the allocated voting interests in the association of unit owners at a special meeting called by the unit owners for the purpose of voting whether to veto a reserve fund line item.
(b) If the unit owners veto a reserve fund line item under Subsection (7)(a) and a reserve fund line item exists in a previously approved annual budget of the association of unit owners that was not vetoed, the association of unit owners shall fund the reserve account in accordance with that prior reserve fund line item.
(8) (a) Subject to Subsection (8)(b), if an association of unit owners does not comply with the requirements of Subsection (5), (6), or (7) and fails to remedy the noncompliance within the time specified in Subsection (8)(c), a unit owner may file an action in state court for:
(i) injunctive relief requiring the association of unit owners to comply with the requirements of Subsection (5), (6), or (7);
(ii) $500 or actual damages, whichever is greater;
(iii) any other remedy provided by law; and
(iv) reasonable costs and attorney fees.
(b) No fewer than 90 days before the day on which a unit owner files a complaint under Subsection (8)(a), the unit owner shall deliver written notice described in Subsection (8)(c) to the association of unit owners.
(c) A notice under Subsection (8)(b) shall state:
(i) the requirement in Subsection (5), (6), or (7) with which the association of unit owners has failed to comply;
(ii) a demand that the association of unit owners come into compliance with the requirements; and
(iii) a date, no fewer than 90 days after the day on which the unit owner delivers the notice, by which the association of unit owners shall remedy its noncompliance.
(d) In a case filed under Subsection (8)(a), a court may order an association of unit owners to produce the summary of the reserve analysis or the complete reserve analysis on an expedited basis and at the association of unit owners' expense.
(9) (a) A management committee may not use money in a reserve fund:
(i) for daily maintenance expenses, unless a majority of the members of the association of unit owners vote to approve the use of reserve fund money for that purpose; or
(ii) for any purpose other than the purpose for which the reserve fund was established.
(b) A management committee shall maintain a reserve fund separate from other funds of the association of unit owners.
(c) This Subsection (9) may not be construed to limit a management committee from prudently investing money in a reserve fund, subject to any investment constraints imposed by the declaration.
(10) Subsections (2) through (9) do not apply to an association of unit owners during the period of declarant control described in Subsection 57-8-16.5(1).
(11) This section applies to each association of unit owners, regardless of when the association of unit owners was created.
Amended by Chapter 189, 2014 General Session
Additional State Reserve Study Laws