How often should a Reserve Study be updated?

A Reserve Study is a budgeting tool that assess the financial and physical health of associations. One of the responsibilities of the Board of Directors, is to act in good faith and in the interest of and for the benefit of the association. This would include managing association financial matters today and in the future. An up-to-date Reserve Study that is relevant protects board members from liability exposure that reserves have been mismanaged or misappropriated.

Laws Requiring Updates vary by State

The interval at which a Reserve Study should be updated is mandated by law in some states. However, Reserve Study legislation varies widely by state. Currently, twenty-two states do not have any specific laws related to Reserve Studies. Some states do have specific requirements regarding the frequency of updates, Virginia requires that associations conduct a Reserve Study at least once every five years. However, California mandates that the Reserve Study be updated at least every three years. Legislation should not be used as a guide for the frequency of Reserve Study updates. We put together a handy cheat sheet of Reserve Study requirements by state here.

How about in Arizona?

There is no statutory requirement to conduct a Reserve Study or requirement to fund reserves in Arizona, but most HOAs and Condominium associations with sizable common area assets elect to fund reserves and conduct regular Reserve Studies because it is sound financial planning to do so. Although Arizona does not mandate Reserve Studies or the frequency of updates, Section 10-3830 requires directors of nonprofit corporations to act in good faith, with the care of an ordinarily prudent person in a like position. Regular updates to the Reserve Study ensure that the board of directors is performing their fiduciary duty to act in good faith and protect themselves from future liability resulting from negligence or mismanagement.

Industry Recommendation

We recommend having the Reserve Study updated annually and conducting a site-visit update every three years. Annual updates between site visits will help ensure the most recent cost estimates and economic assumptions are incorporated into the report. Site visits every three years are recommended to inspect common area components and identify any potential issues with accelerated deterioration or new assets added since the last inspection