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.
Texas Uniform Condominium Act
Sec. 82.102. POWERS OF UNIT OWNERS' ASSOCIATION
(a) Unless otherwise provided by the declaration, the association, acting through its board, may:
(1) adopt and amend bylaws;
(2) adopt and amend budgets for revenues, expenditures, and reserves, and collect assessments for common expenses from unit owners;
(6) regulate the use, maintenance, repair, replacement, modification, and appearance of the condominium;
(7) adopt and amend rules regulating the use, occupancy, leasing or sale, maintenance, repair, modification, and appearance of units and common elements, to the extent the regulated actions affect common elements or other units;
(8) cause additional improvements to be made as a part of the common elements;
Added by Acts 1993, 73rd Leg., ch. 244, Sec. 1, eff. Jan. 1, 1994.
Amended by: Acts 2013, 83rd Leg., R.S., Ch. 678 (H.B. 2075), Sec. 3, eff. September 1, 2013.
Sec. 82.157. RESALE OF UNIT.
(a) Except as provided by Subsection (c), if a unit owner other than a declarant intends to sell a unit, before executing a contract or conveying the unit, the unit owner must furnish to the purchaser a current copy of the declaration, bylaws, any association rules, and a resale certificate that must have been prepared not earlier than three months before the date it is delivered to the purchaser. The resale certificate must be issued by the association and must contain the current operating budget of the association and statements of:
(2) the amount of the periodic common expense assessment and the unpaid common expenses or special assessments currently due and payable from the selling unit owner;
(4) capital expenditures, if any, approved by the association for the next 12 months;
(5) the amount of reserves, if any, for capital expenditures and of portions of those reserves designated by the association for a specified project;
Added by Acts 1993, 73rd Leg., ch. 244, Sec. 1, eff. Jan. 1, 1994.